Big box retailer Target Corporation (TGT) was on a strong momentum run-up that stalled on Sept. 14 with an all-time intraday high of $90.39. The technical problem at the high was that the weekly stochastic reading was above 90.00 on a scale of 00.00 to 100.00. A reading above 90.00 indicates that the stock was in an "inflating parabolic bubble," which has successfully called stock tops all year long.
When a momentum stock misses its earnings expectations, the potential decline is significant, as the 200-week simple moving average, or "reversion to the mean," is a downside risk. For Target, this key level at $71.64 failed to hold following earnings. The stock closed Tuesday, Nov. 20, at $69.03, up 5.8% year to date but in bear market territory at 23.6% below its all-time intraday high of $90.39 set on Sept. 10. The stock has fallen to reach 6.1% above its 2018 low of $65.06 set on Jan. 4.
On Tuesday, before the markets opened, Target reported earnings that were short of expectations. While online sales growth and same-store sales were solid, the retailer missed on estimates earnings per share and on revenue.
The daily chart for Target
Target has been above a "golden cross" since Oct. 19, 2017, when the stock closed at $60.43. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average, indicating that higher prices lie ahead. Once the stock set its all-time intraday high of $90.39 on Sept. 10, my technical levels came into focus as the stock began to fade. There are four horizontal lines on the chart. At the top is my semiannual pivot at $84.71, which was a magnet between Oct. 4 and Nov. 14. The stock then cascaded below my monthly pivot at $83.41 and my annual pivot of $81.64. This indicated risk to my quarterly value level, which failed to hold at $70.42. Tuesday's low was $66.12.
The weekly chart for Target
The weekly chart for Target is negative, with the stock below its five-week modified moving average of $80.78. The stock broke below its 200-week simple moving average of $71.64, or the "reversion to the mean," on Tuesday. The 12 x 3 x 3 weekly slow stochastic reading is expected to fall to 39.63 this week, down from 44.94 on Nov. 16. Note that, at the high, the stochastic reading was above 90.00 as an "inflating parabolic bubble." This indicated that investors should consider reducing holdings on strength.
Given these charts and analysis, investors should reduce holdings in Target shares on strength to my annual and semiannual risky levels of $81.64 and $84.71, respectively.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.