Chart of the Day – On $TGT

by Dan July 8, 2014 12:38 pm • Commentary

In what is setting up to be the worst down day in almost two months in the broad market, with many high valuation stocks getting absolutely smoked, Walmart (WMT) is bucking the trend, up more than 1% on the day. That is despite the fact that their U.S. CEO Bill Simon suggested the recent strength in job gains have not translated into increased consumer spending.  From Reuters, referring to the job market recovery:

“It’s really hard to see in our business today … that it’s gotten any better.”

“We’ve reached a point where it’s not getting any better but it’s not getting any worse – at least for the middle (class) and down.”

WMT is obviously perceived to be a tad defensive given its broad consumer exposure, massive buyback and 2.5% dividend yield, but the stock’s ytd laggard status leaves something to be desired, down 2.2% on the year. While WMT has largely been devoid of news (aside from earnings misses in 2014) competitor TGT has dealt with the aftermath of a massive data breach and management turnover.

Since making new all time highs about a year ago, TGT has been in a massive downtrend, declining about 19%:

TGT since Jan 2013 from Bloomberg
TGT since Jan 2013 from Bloomberg

Since the end of May, the stock has bounced almost 10%, seemingly making a very healthy looking double bottom at $55. But the stock could be at an inflection point right at the downtrend that the stock has not been able to break above during the stock’s entire decline over the last year.

Taking a slightly longer term view, over the last 4 years, regular readers will recognize what could be a fairly dangerous pattern forming, that could soon be resolved, the “Triangle of Death”:

TGT 4yr chart from Bloomberg
TGT 4yr chart from Bloomberg

I would point out while the “Triangle of Death” is by no means a take to the bank entry on the short side, for those who use technicals as an input to their investing and trading, I think it is important to consider the sort of countertrend bounce that TGT just had from $55 to the downtrend at $60 as potentially a good spot to lighten up on a long, or maybe even a decent entry for a short.

TGT does not report Q2 earnings until Aug 20th, which is likely the next identifiable catalyst, and for a company whose fundamentals appear to shaky at best, a re-test of the $50 level could be in the cards on another disappointing qtr and guidance.  This one is on our radar for a short entry on a failure to breakout above the downtrend.