Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

Target Corporation (Ticker: TGT) will never be able to compete with Walmart or Amazon due to their massive scale …

However, TGT did an admirable job matching its 2022 Christmas season with 2021 and have reduced their inventory overhang. 

It also renovated its stores to serve as fulfillment centers, which positions it well above the smaller competition, driven by cost advantages and owning many of its brands.

Currently, the stock is offered at a discount.

Today, we’ll dive into the technicals and option positioning analysis to find a good risk reward trade.

Stuck in Consolidation

TGT had a historic run during Covid, rallying from $85 to $260 by the end of 2021. 

Then the Fed’s tightening cycle and higher prices drove the stock down below $140 in 8 months. 

The stock has been hammered but has since settled into a trading range. Management took their medicine and have since decreased their inventory levels $3.5 billion. 

Plus, partnerships with CVS, Disney, Apple, Starbucks, and Ulta Beauty have lifted sales through creating 350 store-in-store setups. 

For the first time in many years, TGT’s stock price is trading at a discount to Morningstar’s $177 fair value price. 

Option Positioning Analysis

A look at TGT’s option positioning reveals that it has solid support below. 

The analysis measures the net open interest across all strikes to reveal the strongest support and resistance levels. Here are the results:

There are a couple of takeaways from this graph:

1. 1. 1. The $160 strike is the largest total open interest of any TGT strike, acting as a magnet for the stock. Market makers love to pin a stock to large strikes, which limits the risk in their trading book. 
      2. The $140 strike is the lowest strike with large open interest. So, it is the lowest you would expect the stock to go on a spike lower providing you a good stop loss level for a bullishly biased strategy.

What’s the Trade? 

The bottom line is TGT is in consolidation and heading towards the bottom of the range.

I would let this break below the 200 dma play out and hopefully give you a chance to buy a call spread with the stock trading in the $140 to $145 range. 

The call spread is simple to manage because you could stop yourself on a close below $140 for a small loss or possibly double or triple your initial investment on a rally back to $160.  

I may be biased because I have a Target within walking distance of my home in Tampa, but I think it’s turning things around.

Putting a bullish strategy on the next dip could pay nice dividends.

Live and Trade With Passion My Friend,

Griff