Targeting Target’s Profits for Ourselves

Betting on adaptability

With most of the front-page financial news coverage obsessing over high-flying stocks like Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA) during the latest bullish rally, it has been easy to forget about some of the less flashy, but equally impressive, stocks on Wall Street.

However, after the latest pullback in the S&P 500, we think traders are starting to diversify their interests and attention, leading them to these stocks once again.

As traders look around for other stocks to add to their portfolios, we think many of them are going to zero in on Target (NYSE:TGT).

Boosting e-Commerce Success

TGT has had a tremendous year. It has proven that it is ready to compete with AMZN for market share during the pandemic, and Wall Street has taken notice.

Traders launched the stock higher on Aug. 19 after the company smashed revenue estimates by $2.87 billion and non-GAAP earnings estimates by $1.74 per share — coming in at $22.98 billion and $3.38 per share, respectively — during its latest earnings announcement.

These incredible numbers were driven by a 195% year-over-year boost in digital sales and an amazing 24.3% boost in comparable in-store sales. It seems that consumers are not only shopping more at TGT but also buying more when they go.

And it can be easy to forget, but that success wasn’t limited to the second quarter. In the first quarter, TGT boosted sales by 11.4%.

Being able to adapt its business has made TGT an extremely appealing target for bullish trades, and we think now might be the perfect time for a put write.

Pulling Back Before Jumping Up

TGT has pulled back a little bit since its post-earnings bump as Wall Street has been taking some profits off the table during the past two weeks. This gives us an excellent opportunity to enter a new trade.

If you look at the chart below, you can see that TGT gapped higher after reporting earnings in August. As the stock drifts lower, we expect it to form support at around $140, which gives us a perfect strike price for a put write position.

Daily Chart of Target (TGT) — Chart Source: TradingView

The stock did bounce off the $143 level last week after drifting lower, but we wouldn’t be surprised to see it continue to fall. Setting a strike price at $140 gives the stock plenty of wiggle room in this trade to consolidate while remaining out of the money.

Ultimately, we anticipate TGT is going to break above its current down-trending resistance level and confirm a bullish “wedge” continuation pattern.

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.