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Swing Trading: How Target (TGT) Gave Early Technical Signals Leading to Q2 Earnings

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Target (TGT)--you know, the store where you buy anything from cleaning goods, diapers, and toys to some tech, food items, and pretty everything else when you need more than your local grocery store but arent willing to brave the long lines at Costco or WalMart.

From a swing trader perspective, it presented a double opportunity in the form of earnings and technicals if, for any reason, you follow this industry. Typically, we encourage traders to look at the underlying fundamentals as a strategic rationale behind any swing trade. But in this instance, the reverse is true.

If you were following TGTs Q1 earnings [1], you know that they topped analyst expectations despite experiencing difficulties due to the COVID lockdown--namely, the cost of transitioning sales over to digital. Fortunately, TGT remained open during the Great Lockdown. But the cost of increased wages and store cleaning among other expenses cost the company a whopping $500 million. Ouch. TGTs Q1 EPS came in at $0.58 (adjusted) vs the anticipated $0.40. Revenue came in at $19.62 billion (vs $19.04). Same-store sales were up 10.8%. Not bad. But what might that mean for Q2? The company withheld guidance.

In mid-June, TGT began exhibiting an ascending triangle pattern, which is generally bullish. A breakout from this pattern took place [2] right at the beginning of August, weeks before Q2 earnings. A rising stock market, increasing business reopenings, and hints that the Fed would continue to support the market by holding rates near zero in an attempt to stimulate inflation might have been reason enough to have a slightly bullish bias toward the retailer. Besides, everyone and their grandmother goes to TGT to shop.

A traditional profit target would be to add the distance of the top and bottom of the triangle formation to the breakout, in this case [4]. That would have been a nice target (no pun intended) and a clean swing trade. But then you had earnings [3]--perhaps a reason to hold your position or initiate double your position.

Q2 saw an earnings blowout: An EPS of $3.38 vs $1.62; revenue of $23 billion vs $20.09 billion. Store sales saw a 24% rise in sales but online sales saw a growth exceeding 700%! Hence, the bullish runaway gap. In a situation like that one, you might have placed your stop loss at the initial target level at [5][ (or if you had multiple positions, youd have taken profit while keeping half your positions open). Since were swing trading and not investing an exit at [6] as TGT began to slide would have been a nice secondary target level.

Trading futures, options on futures, and forex involves substantial risk of loss and is not suitable for all investors. The use of leverage is not suitable for all investors and losses exceeding your initial deposit is possible. Carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources and only risk capital should be used. Opinions, market data, and recommendations are subject to change at any time. The lower the margin used the higher the leverage and therefore increases your risk. Past performance is not necessarily indicative of future results.

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