Serge Berger is the head trader and investment strategist for . Sign up for his .
The stock price of Target (NYSE:), the general merchandise and food discount retail giant, has had a bumpy ride as of late.
After finding a bottom in early 2009 along with the broader market, the stock rallied roughly 140% in the span of 20 months, topping out in early January 2011.
In early January, Target gapped down significantly and, after consolidating for several weeks, finally dropped below the up-trend line (blue) that had served as support since July 2009. The stock then continued to fall until the late June rally allowed it to pop higher.
After finding a bottom on June 27, the stock first slowly, then rapidly, moved higher, and on July 7 it gapped up big only to find resistance near $52, which was a recent high on May 13. The stock then more or less moved sideways for the month of July so far and bumped between $50 (the top of the gap from July 7 marked in gray) and $52. Because the stock has now moved sideways in this fashion for three weeks, the likelihood of it breaking one way or another is increasing.
The two trades are as follows: Should Target drop below $50 on a daily closing basis, traders can short the stock with a target around $48.50, which would correspond with the fill of the gap (the gray zone on the chart). However, the more profitable trade, percentage-wise, would be if the stock closes above $52 on a daily basis. In that case, traders could go long the stock with an initial target near $55.
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