Target stock came into Tuesday under pressure after a bearish update.
Target (TGT) – Get Target Corporation Report stock opened more than 7% lower on June 7 after the retail giant warned about its profitability.
Just a few weeks ago, Target stunned Wall Street with its quarterly update as inflation and inventory issues cut into its guidance.
Walmart (WMT) – Get Walmart Inc. Report spoke in a similar tone the day before.
In the latest update, Target said its second-quarter operating margin would likely come in closer to 2% rather than the 5.3% it guided to last month. Further, the retailer is offering deeper discounts on some of its products to reduce inventory.
Interestingly, Costco Wholesale (COST) – Get Costco Wholesale Corporation Report is raising prices while Target is now cutting them.
Another interesting note? Investors are buying the dip. A few weeks ago, Target and Walmart’s update sent a one-two punch rippling through the market.
Now, though, we’re seeing the opposite effect. Target stock is down just 1% on the day, while the S&P 500 and Nasdaq — which were down 1% and 1.4% in early trading, respectively — are now both in positive territory.
Are investors changing their tune?
Trading Target Stock
Daily chart of Target stock.
Chart courtesy of TrendSpider.com
A glance at Target’s stock reveals one very key area: $145 to $150. The importance is a culmination of several observations.
First, the stock hammered out its initial post-earnings low in this zone. It’s now retesting this area today, but we’re getting a robust buy-the-dip reaction from the bulls.
Second, we have the 200-week moving average in this zone. It adds to the significance and legitimacy of this area. Lastly, there’s bullish divergence on the RSI reading (as noted at the bottom of the chart).
Put it all together and Target stock has a pretty impressive support zone.
But — that does not mean the stock is out of the woods.
We’ve almost completely filled today’s gap, but other hurdles exist. For starters, Target stock has not reclaimed the declining 10-day moving average. For now, that’s likely to be active resistance.
Additionally, the stock has put in a higher low and lower high. This wedge pattern is a consolidation phase and we still face the risk that it consolidates and breaks lower.
That changes if Target stock can break out over wedge resistance (blue line) and clear the post-earnings high at $168. Above $168 and the stock can begin filling this giant gap, which goes all the way up to $209.
Of course, to completely fill the gap it will have to push through the declining 21-day and 50-day moving averages as well.
Obviously the bulls do not have an easy ride from here.
It’s immensely positive, however, to see a bullish reaction to a bearish news item. The stock still faces headwinds, but if it can clear them, it could set up Target stock for an extended rally.