Tuesday, February 7, 2017

Strategy? [TGT]

     There has been a lot of news and prominent investors coming out and saying a load of different things. Some argue that all of Trump's plans will encourage growth and the stock market will continue its bull trend for the foreseeable future. Others are saying that a tax cut could increase the debt dramatically and lead to a market correction. It has been very frothy lately, not wanted to move too much higher of lower since mid December. Seth Klarman in his note to his investors wrote that he is moving toward a larger percentage of cash in his portfolio because he believes there is more downside potential. 

     This is where a strategy is forming in my head. So far the buyers and sellers have pretty much evened each other out. Some small ups and downs, but nothing to really worry about. I have been looking at the stocks that are oversold in this market of mostly overbought securities. More specifically, the RSI, or relative strength index.

   This is the screenshot from finviz where I do my stock screening. I like to look for companies below 30, favorably below 20. So for me that would be step 1. 

     Step 2 is to find a stock that in your own eyes looks good. The one I have picked was under 20 a few days ago but has since breached 20 to 28 in the RSI indicator. I picked this one stock because the companies has stores all over the United States and is in no trouble of bankruptcy. They stand to benefit a great deal from any corporate tax cut President Trump and his administration agree to and they are at 2 year lows. The stock I have picked, and actually many top analysts have picked, is Target Corporation. 

Target    [TGT]

     Posted below will be the screenshot from stockcharts.com regarding the daily numbers. 

     The things I don't like about this chart revolve primarily around the moving averages. In a bearish move, the 50 day exponential has crossed under the 200 and it looks like the normal is right behind. That's to be expected though considering the big movements of this stock. They were brought up high with most other stocks during election time and since has come down to below pre election levels. The jump up likely was due to people acting out of emotion causing the markets to behave inefficiently. 

     The things I do like about this stock are obviously the RSI sitting at 28 showing it is and has been oversold for roughly three weeks now. Since the initial dive the stock hasn't rallied at all, actually doing the opposite and dropping a little bit more. However, the MACD and the stochastic indicators here seem to be working in tandem and could be a great sign. I have said in the past that each of these on their own can show changes in short term trends and when the stock may start to tick up or down. Both when the black line cross above the red line. While both happening separately is great, the two charts crossing together is an even stronger signal. The thought here is if the stochastic crossed above the red line within 3 days of the MACD doing the same thing then the stock price will start to rise. It is hard to tell where the stochastic lines are at and if either of them have crossed, but they are extremely close and it may qualify as "together". 

     In the near term I am very positive the market will see growth in the share price of Target. In the longer term, over the next year to two years, I have similar views. With the new administrations proposed corporate tax cuts I see the financial statements and future outlook of Target getting better and better quarter over quarter. 

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