Target Corp. (TGT) traded sharply higher in Wednesday’s pre-market after reporting in-line revenues and increasing quarterly sales guidance by a small margin. The buying spike follows positive sector action that’s lifted many brick and mortar operations to 52-week highs. Even so, revenues and sales continue to contract at the big box retail chain due to the paradigm-shifting exodus into e-commerce.
The rally won’t signal a new trend advance because the price has just completed a long test at multi-month range support in the upper-60s and will need to add many more points to challenge the 2015 bull market high in the mid-80s. The next upside catalyst will come in December when we find out how willing consumers are to open their wallets for holiday purchases after the brutally contested presidential election.
TGT Long-term Chart (1993-2016)
The stock underperformed badly in the first half of the 1990s, grinding through a multi-year triangle pattern that finally broke to the upside in 1996. The subsequent rally added points at a rapid pace, lifting to $39.19 in March 2000, at the end of the Dot.com bull market. Price then eased into another sideways pattern, carving a trading range with support in the low to mid-20s.
It broke out once again at the end of 2014, joining world markets in a strong uptrend that persisted into the 2007 high at $70.75. Selling pressure increased in 2008, triggering a test at 3-year support in the mid-40s, followed by a volatile breakdown to a 6-year low in the first quarter of 2009. The subsequent bounce came up short, stalling in 2011 at the .786 Fibonacci selloff retracement level, and requiring another two years to complete the V-shaped rally to resistance.
Price action built a rounded bottom in 2014, completing the handle of a cup and handle pattern that yielded a 2015 breakout and June all-time high print at $85.81. Aggressive sellers then took control in a correction that’s still in progress more than 16-months later. The C&H breakout (blue line) defines the low end of this rangebound pattern, with the stock bouncing at that level four times in the last year.
Weekly stochastics entered a new buy cycle in September while the monthly indicator has been stuck at the oversold level since July. This is a bullish combination, predicting the stock is set to enter a long term buying impulse that could eventually yield a test of the 2015 bull market high. However, don’t expect a vertical assault into that level, with the chart structure favoring back and fill type action that builds new sponsorship.
TGT Short-term Chart (2014-2016)
Rallies have attempted to break range resistance in the mid-80s three times without success, reinforcing the barrier while multiple breakdown attempts in the upper 60s have also been thwarted. This morning’s rally filled the August gap near $73 and continued into the July swing high at $77, with fresh sellers likely to emerge at or just above that level. At a minimum, the uptick should signal a successful breakout above the 200-day EMA and offer support between $72 and $73.
On Balance Volume (OBV) posted a new high during the April 2016 breakout attempt in a bullish divergence that points to a loyal shareholder base. The indicator turned lower into the fourth quarter and now requires substantial buying interest to make up a sizable deficit. This positioning also argues for a progressive pattern, in which bulls and bears fight for control, rather than a quick rally into the mid-80s.
The Bottom Line
Target rallied more than seven points in early trading on Wednesday morning, following a bullish reaction to a mixed earnings report. It’s likely to attract new sellers at the current level, telling prospective shareholders to keep their power dry and wait for the price to pull back before jumping on board.
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