Target: Volatility Squeeze and a Golden Cross

Big-box retailer Target has been amazingly stable for the last two months. It’s squeezed into a triangle on either side of $120, lurking below its 2019 high of $130.24.

During that time, its 50-day simple moving average (SMA) rose up and above the 200-day SMA. That kind of “Golden Cross” can signal longer-term momentum is turning more bullish.

TGT also has some fundamental reasons to pause. In recent years, CEO Brian Cornell spent heavily on digital transformation. This succeeded in terms of moving shoppers to the Internet and helped boost store traffic. However the last two quarters have seen product mix veer sharply toward lower-margin products (like food over toys, apparel and electronics).

Some of those headwinds could fade now that inventories have been written down and the U.S. economy staggers toward reopening. Now could be the time for margin expansion, as shoppers start perusing aisles again and the years of IT spending pay off.

This creates an interesting risk/reward in TGT. Its tight range creates the potential for gains to accelerate as price action widens and earnings approach on August 19. (Notice extremely tight Bollinger Band Width).