Target shares gapped down on Friday, following weaker than expected earnings results for the company in the first quarter of 2016. This follows the trend from other consumer sector companies such as Macy’s, JC Penney, Nordstrom, and Walmart.
Target reported a profit of $632 million, down from $635 million a year earlier, as earnings rose to $1.02 from $1.01 thanks to a lower share count. Revenue declined 5.4% to $16.2 billion, lower than estimates at $16.3 billion for the period.
Sales at existing stores rose 1.2%, short of Target’s 1.5% to 2.5% annual target, as the company expects to post $1 to $1.20 in adjusted earnings per share, short of the $1.36 forecast. A closer look at the numbers reveals that the company’s digital sales posted a significant decline for the period, presumably as Amazon has been chalking up most of the activity in that sector.
From a technical standpoint, Target shares could be poised for further downside as a double top pattern has been completed. A break below the current support levels at $67.50 could inspire longer-term declines, as investors digest the downbeat guidance that management has presented.
However, stochastic is already indicating oversold conditions and is turning higher, suggesting that a bit of profit-taking could take place. RSI is also deep in the oversold area and is starting to point north so Target shares could be in for a bounce or some consolidation around the current levels.
A return in buying pressure could allow shares to fill the gap until the $72.50-73.00 area prior to the release of the company earnings, at which more sellers might be waiting with their short orders. The moving averages are still oscillating, although stronger downside pressure is likely.
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