Draw a Target On This Stock

In the September 5th issue of Seasonal Forecaster, I showed how the Market Vectors Retail  ETF (RTH), and most of its top 10 component stocks, were making major moves upwards. While I specifically focused on Amazon (AMZN) in that article, most of the other top 10 components remain interesting trade candidates.

One component stock that you haven't been hearing much about is Target (TGT), the retail chain that suffered a security breach of their computers back in January. Their reputation, and their earnings, suffered from that attack.

Target didn't sit still though. They not only addressed their security problems, but have been working to refine the focus of their stores to remain competitive (Target aims to get its groove back (CNN) and Target aims to be ‘cool again' (IBD)). A new CEO came in on August 12th (Brian Cornell, from PEP Boys).

The market seems to be giving Mr. Cornell the benefit of the doubt:

Mr. Cornell bought 201,754 shares of TGT on August 21st, so he apparently believes in himself. The SEC filing didn't say what price he paid for those shares. But one of the directors bought 10,000 shares at $56.78 back in early June. Another indication the insiders think they can do something with Target.

In the near term, Target does not have a strong seasonal tendency for movement in any direction. Over the next 6 months, TGT has gained an average 9.3%, with gains in 21 out of 30 years. Notice some of the big moves:

The seasonal track record isn't strong enough to bet on a specific direction. Any trade in TGT right now would be based on just the technical setup and the belief that the company's fundamentals are improving (and therefore may draw new buying interest).

But it happens that the Implied Volatility of TGT's options are near the lows for the past year. So buying options, especially in both directions, such as with a straddle, are worth considering. And an appropriate trade strategy, such as targeting exiting a straddle trade as soon as a 20% profit is made, could make this a higher probability trade.

For example, TGT closed yesterday at 62.59, which is right on the 62.5 strike (straddle trades work best entering when the stock is right on a strike). If we were hoping to make 20% within 3 weeks, a 1-contract TGT October 62.5 straddle would cost about $235.00, and TGT would have to reach only 65 (a 3.9% gain) or 60 (a 4.1% loss) by September 26th for this trade to be up 20% (theoretically – there are other variables, but with IV's low, in most cases any change in the other variables will only help the trade get to profit sooner).

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2014 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

The content on any of Market Tamer websites, products, or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options, and other securities involve risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities are not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/publications/risks/riskstoc.pdf). The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.

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