Last week was all about the lows.
My phone was blowing up every day with an index or stock hitting fresh 52-week lows.
It can be downright depressing.
But hey, I don’t buy and hold stocks. I trade. And when we trade options, it doesn’t matter which way the stocks are going, all we care about is movement.
And there’s no shortage of that right now.
This week, I want to breakdown the two retail giants, Walmart Inc. (NYSE: WMT) and Target Corp. (NYSE: TGT).
They have been a dominant force in our economy for decades, but they look even stronger since the pandemic. These were some of the few stores that remained open, and they continue to be the heartbeat for America.
These will be pivotal earnings reports to see how bad things really are out there, from a consumer perspective and a logistical perspective.
I’ll be listening in. But here’s what to expect from the price action…
Update on Last Week’s Stocks
Before we get into this week’s stocks, let’s reflect on last week’s selections.
We looked at Tapestry Inc. (NYSE: TPR), which tumbled going into earnings but then popped over 5%. It was good enough to trigger a new earnings boost signal which calls for more gains ahead.
Electronic Arts Inc. (Nasdaq: EA) jumped on earnings as well, but failed to break out of the consolidation pattern on the chart — so no trade on EA.
Earnings Edge Stock No. 1: Walmart Inc. (NYSE: WMT)
Earnings Announcement Date: Tuesday, before the open.
Expectations: Earnings at $1.48 per share. Revenue at $138 billion.
Average Analyst Rating: Outperform.
Walmart, known as the more budget-friendly retailer, will look to boost confidence in its stock.
Shares have held up mostly for the last couple of years, trading mostly sideways. WMT missed out on the boom higher in growth stocks, but it’s also avoided the severe crash those stocks experienced.
With shares down 8% in the last two weeks headed into earnings, we can expect more volatility this week.
WMT’s Roller-Coaster Journey
Watch that red resistance level.
Shares broke above it in April, but are now back below it. If WMT fails to rally back above that line on earnings this week, I’ll expect more struggles for the stock.
The options market is only pricing in a 2.5% move.
I think WMT will make a bigger move than that, but who knows which direction it will pop?
That’s why a straddle may be a good play here. Cheaper options ahead of an expected 5% to 10% move can set you up for profits no matter which way the stock goes.
Earnings Edge Stock No. 2: Target Corp. (NYSE: TGT)
Earnings Announcement Date: Wednesday, before the open.
Expectations: Earnings at $3.05 per share. Revenue at $24.4 billion.
Average Analyst Rating: Outperform.
Target is our family’s personal favorite. It’s closer to home and not as crowded. That shows on its revenues that are about a quarter of the size of Walmart’s.
Maybe that’s why the stock has had a much stronger performance since the pandemic. Smaller revenues mean more room for growth.
TGT is up 75% since the start of 2020. WMT is up just 25%.
That outperformance has not been kind for many stocks, as we enter what many are calling the next bear market. And it will be something to watch for Target’s stock going forward.
TGT’s Growth Is Tested
Shares peaked late last year before dropping sharply through February. This dip broke a support area (in green) that it seems to have regained.
Quick drops like this, through support or above resistance, can be ignored with some trendlines. But it does signal more weakness ahead.
So even though the stock rebounded this year, it failed to hit a new high as indicated by the red resistance line.
We are in the middle of the next pullback, and it’s critical for that support to hold. If it fails again, this stock has plenty of room to run to the downside.
Target premiums are higher in options markets, with a 3.5% expected move.
There’s still potential for a straddle trade, but it gets harder to make money the higher the premiums. You would need at least a 7% move to be profitable. It could move that much, but Walmart is the better straddle play today.
These two giants have become an even bigger staple of the economy.
Let’s hope we don’t have to test how recession-proof they really are. Because one thing is for sure: In a recession, everything will be impacted — even retail outlets that are considered essential businesses.
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