Notice how Target tends to fall and signal a weak economy, which is picked up in the Bond market with falling rates (Bonds rise when rates fall - this is a chart of yields). There are 3 white-box areas that show the pattern. You can see it is a very reliable and useful pattern.
This time around, however, that signal is not transmitting through in the markets. There is a strong feeling that now is the time to borrow money and the world is out there aggressively selling T-Bonds now, which is also building up a huge short position in futures markets. Market commentators are talking about how big the short position is, but the reason it is there is because people believe interest rates are headed higher because of the Trump Administration.
What I think we should do is to buy TGT here. Because this is a divergence this time and Target is oversold down into a level where there is significant support and volumes are slowing down and losing momentum as buyers absorb shares from the panicking sellers.
I view upside as the $70-$72 area in the next 3-6 months. I would consider selling calls at the $70 level to capture premium which is likely elevated due to recent volatility.
I'll do some fundamental valuation analysis next, but this chart is compelling enough to me to make me want to own Treasury Bonds and to also own Target shares, instead of holding onto cash.
Cheers.
Tim TGT 64.17 last TYX 2.99% last January 23, 2017 11:45AM EST
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Valuation is decent with 5+% free cash flow yield.
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wtfrtr
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Tim,
Which month's call options you are looking to sell ? Based on your above analysis, Apr 70 long call for .63c looks better risk/reward wise. Let me know your thoughts
Thanks.
A-shot
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"compelling enough to me to make me want to own" am i reading it correctly - that you would need more to get a confirmed decision on getting in target-bonds? It does seem to make lower lows, and sharper declines are not my favorite setup after several similar moves as it feels as buyers are not as aggressive and sell side gets their way faster.
hasskhalife
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Great summary, @timwest. I bought some on Friday and this makes me feel better about my decision.
Which month's call options you are looking to sell ? Based on your above analysis, Apr 70 long call for .63c looks better risk/reward wise. Let me know your thoughts
Thanks.