September 2, 2015
This Trade is Just Too Good to Pass Up...
By Michael Kahn
Trading when the market goes haywire is always difficult because volatility can easily crush a trade before it even gets going.
But when setups look great sometimes we just have to take them.
Right now, retail giant Target (NYSE: TGT) is presenting a classic short setup, starting with its membership in the weak retail sector.
It is clearly the technicals that are driving this stock's fortunes, not the fundamentals.
When the company issued its latest earnings report on Aug. 19 before the market opened, the numbers looked rather good. In fact, Target beat analysts' revenue and earnings expectations and even raised its full-year outlook.
But on the chart, TGT's pattern is similar to the broader market with a sharp breakdown from a multimonth sideways pattern.
On Aug. 24, as the Dow Jones Industrial Average plunged more than 1,000 points, TGT fell all the way from support in the $78.25 area to the next level of support at $72. In doing so, it cracked through the 200-day moving average for the first time since October, when the market was in panic mode over the Ebola virus.
There is nothing advanced about this pattern. A support breakdown with buyers coming in at the next support level is not going to make front-page news. However, adept traders will note the severe shift in sentiment that took place that day.
As mentioned, the earnings results were good, and traders bid up the shares about 5% in the premarket session. But that was all she wrote because sellers took over almost as soon as the regular session bell rang. By late morning, the entire gain was wiped out and the stock limped into the close with a minor net gain.
Sentiment 101: Bad price action on good news is bearish.
Two days later, the bottom fell out. Target rebounded from the initial beat down along with the market, but with falling volume in a classic bearish wedge formation. And the wedge failed right at the combination of the 200-day moving average and former support, both of which were and still are acting as resistance.
Buyers may emerge as the stock dips back to support at $72. However, given the size of the topping pattern seen this year, it would seem that this level would merely be a speed bump on the way to a lower measured target.
The height of the 2015 range projected down from the breakdown point puts that objective in the $68 area. It is no coincidence that is also where the rising gap from November's earnings report, which was also better than expected, resides.
Given the speed and volatility of the market today, not to mention the upcoming seasonally weak period of September and October, the decline should be swift.
Recommended Trade Setup:
-- Sell TGT short at the market price
-- Set stop-loss at $78.75
-- Set initial price target at $68 for a potential 10% gain in five weeks
A few more nasty days in the market and the target could actually be hit much sooner. Just ask Profit Amplifier readers. While others panicked, they have made a killing on falling stocks since the downturn began:
-- A 39% gain in seven days
-- A 69% gain in nine days
-- A 33% gain in four days
They've been following the advice of a millionaire trader -- a man who predicted this downturn perfectly. He is about to release his next trade, which he projects will land traders at least 30% profits by year end -- and possibly much sooner. To be on the list of people who receive it, you can sign up here.
And if you'd like to learn more about his strategy for making money from stocks whether they go up or down, check out this presentation. But don't wait too long. More pain is coming.
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