The market appears to be having trouble moving higher.
This is creating new patterns that will identify the best stocks to get in now and as the market consolidates or sells off.
Today’s trade is good example of a stock that is setting up to move as soon as the market resumes its uptrend.
As you can see in the chart below, Target (TGT) has been moving sideways for about a month, and it has a well-defined range of $85.50 to $89.50.
What you can’t see in the chart is that this consolidation is right below the all-time highs of $90.50 set in September of 2018.
This long-term pattern sets the stage for a sustained move higher if TGT breaks $90.50.
I’m going to look at two ways to play this big pattern.
The first is the way you would expect me to suggest. Buy a breakout over the range. This means buy when it trades over $89.50 and expect the $90.50 will be broken as well.
There is not a great stop based on the low of a range for this breakout, so the next best option is well below the breakout resistance.
Therefore, the stop for the breakout trade will be under $88.
The second trade idea is one for a market sell-off scenario.
If the market sells off and TGT pulls back to $86.25, look to be a buyer between $86.25 and $85.75.
The idea is to anticipate that the low of the range will hold and you’ll have a great entry with which you can then wait for a new high breakout.
The stop on this pullback trade is under $84.75.
The pullback trade gives you the opportunity to have a good trade with a tight stop, even if you decide to sell on a rally up to the high of the range around $89.
In fact, if you sell ½ your position on a rally within the range, you can create a scenario where even if you get stopped out, the trade will not lose money.
Rick Nartarian, Chief Investment Officer
The American Investor Daily