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Over the last month, Target Corp. (NYSE: TGT) has seen its stock price make a great run after falling for approximately seven months. From Feb. 11 through March 11, the stock gained an impressive 22.9%, making up almost all of the loss the stock saw from June through January.
The unfortunate thing for Target stock is that it could be facing a double-top pattern. The stock set an all-time high of $83.84 in June 2015. The huge rally over the last month seems to be stalling now: the stock is overbought based on the daily stochastic readings, as well as the 10-day RSI. Both of these indicators have been in overbought territory for almost a full month now.
Over the past year, we have not seen any extended period of time when the stock has remained in overbought or oversold territory like the current stretch.
Looking at the weekly chart, we see that both the weekly stochastics and the 10-week RSI are both in overbought territory, thanks to the rally over the last month. We also get a better look at the all-time high from June. One particular thing that I noticed is how it wasn’t unusual to see the weekly oscillators stay in overbought territory for extended periods of time, unlike what we saw on the daily chart.
Turning our attention to the sentiment toward Target, we see a rather bearish opinion on the stock. The short interest ratio is currently at 6.74, and the analysts aren’t very optimistic either, with only 11 “buy” ratings out of 26 total ratings.
What is really amazing is that Target missed on its most recent earnings report on Feb. 24, but the stock jumped that day and continued to climb in the following weeks. The company also missed on its revenue estimates in that earnings report.
So why did Target stock jump on Feb. 24 and continue to climb for another two weeks? The company raised its earnings forecast for the fiscal year. It raised earnings guidance to $5.20-$5.40 per share for the year, while most analysts were expecting annual earnings between $4.70 and $4.90.
To summarize, we see a technical picture in which the stock is facing resistance and is overbought on both a daily and weekly basis. From the sentiment side we see a relatively pessimistic view of the stock which is bullish from a contrarian viewpoint. And from the fundamental point of view we see a company that missed on its most recent earnings report, but raised its annual earnings guidance.
What should you do? Personally, I see Target stock falling over the next month or two, which will bring the daily and weekly oscillators out of overbought territory. From there, I can see the 104-week moving average acting as support, and then the stock should benefit from the pessimistic outlook and the increased guidance.
In other words, I would look to buy the stock after it has dipped over the next six to eight weeks.
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