Target Stuck in Neutral Ahead of Earnings

Target Corporation (TGT) reports fourth quarter earnings ahead of Tuesday's opening bell, with analysts expecting earnings per share (EPS) of $1.52 on revenue of $23.0 billion. The stock fell more than 10% in reaction to November's third quarter confessional after the big box giant missed profit and revenue estimates. Look for a more bullish reaction this time around, whatever the results, thanks to trade deal optimism that has lifted retail sector funds to five-month highs.

Target stock has underperformed badly in recent years and is now trading at a price level first struck in 2013. Self-inflicted wounds from a well publicized hacking incident as well as market share lost to e-commerce have driven this mixed price action, which is likely to continue into the foreseeable future. Even so, oversold technical readings could support a period of healthy buying interest that brings the 2018 high back into play.

TGT Long-Term Chart (1995 – 2019)

The stock has traded on U.S. exchanges since at least 1969. It broke six-year resistance near a split-adjusted $7.00 in 1996, entering a powerful trend advance that stalled in the upper $30s in 1999. It sold off into the mid-$20s in 2000 and bounced strongly, testing resistance repeatedly into a January 2002 breakout that stalled in the mid-$40s in February. Sellers took control a few months later, triggering a failed breakout and decline that nearly reached 2000 range support.

A 2004 breakout signaled a healthy period that added more than 20 points into the 2007 high at $70.75 before rolling over in a decline that failed breakout support once again. The subsequent decline ended within four points of the 2000 low in March 2009, continuing sideways action in place for more than a decade, ahead of an uptick that took four years to complete a round trip into the 2007 high.

The stock finally cleared resistance in 2014 and lifted into the mid-$80s in 2015, but the uptrend failed to hold support once again, breaking down after nearly 18 months of testing. This decline hit a five-year low in the upper $40s, yielding a bounce that posted an all-time high less than five points above the 2015 high in September 2018. An eight-point November sell gap after third quarter earnings failed this breakout, continuing the multi-decade string of bull traps.

The monthly stochastics oscillator reached the oversold zone and crossed into a buy cycle in 2011, 2014 and 2017. It turned higher after failing to reach that extreme level in February 2019, lowering the reliability of the currently bullish signal. This makes sense, with the 2019 bounce reaching November 2018's massive unfilled gap, which could take months of buying pressure to overcome.

TGT Short-Term Chart (2017 – 2019)

Fibonacci grids organize price action since 2017, with the 2019 uptick stalling at the alignment between the .382 rally and .50 sell-off retracement levels. The 200-day exponential moving average (EMA) has dropped into narrow alignment with this harmonic barrier, highlighting strong resistance between $73 and $75. The 50-day EMA is acting as support in this complex pattern, aligned at the .382 sell-off retracement level near $72.

The on-balance volume (OBV) accumulation-distribution indicator posted a 10-year high when price hit an all-time high in September 2018. It held high in the 2018 range during the fourth quarter swoon, indicating loyal sponsorship, but the indicator has barely budged so far in 2019. Unfortunately, this may indicate that short covering has driven the majority of upside since December rather than fresh buying interest.

Summing up, Target stock's rally into March has stalled at 200-day EMA resistance ahead of this week's earnings. A large buy gap could mark a bullish change in character, while a small buy gap or decline is likely to attract follow-through selling interest. The gap fill at $78 marks major resistance, limiting the potential gains following a strong buy-the-news reaction, while a decline that pierces the February low at $69 could imply a return to the 2018 low.

The Bottom Line

Target stock has bounced to resistance ahead of this week's earnings report, with the odds now evenly divided between a bullish and bearish reaction.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.