Target (TGT) is set to report earnings Wednesday. The stock is down and short interest is rising—both historically bearish signals. Implied volatility remains high, and options markets are pricing in a larger-than-usual move. These factors suggest downside risk heading into the print.

Target (TGT), a well-known department store chain, is scheduled to report earnings on Wednesday before the market opens.

Historically, the stock exhibits momentum around earnings: the post-earnings move typically continues in the direction of the pre-earnings trend.

This week, TGT shares are down 3%, a bearish signal based on this pattern.

Short interest is also rising, which is notable since historically, increasing short interest has been a reliable predictor of negative returns.

In our model, short interest is highly predictive; post-earnings return is very sensitive to prior higher short interest, shown in the steep downward-sloping blue trend-line.

Short interest as a percent of float is up 6% this week, another bearish model indicator.

Both signals, falling price and rising short interest, align to reinforce a bearish bias.

Short interest in a year has climbed from 1.4% to 4% of float, reaching a recent high. This increase, coupled with the stock making new lows, reflects worsening sentiment. TGT is down 25% YTD, impacted heavily by exposure to tariffs like many retailers.

In the November post-election earnings report, the stock dropped 22%, following a record 7% spike in weekly short interest, which led to significant volatility.

Short-dated implied volatility peaked at 60 in April and remains elevated at 45. This suggests strong investor demand for put options, which function as a proxy for bearish bets or hedges, effectively similar to shorting the stock.

Notably, this spike in implied volatility occurred outside of an earnings window. The elevated IV was driven by two factors: the stock was trading at multi-month lows, and realized volatility was high.

Implied volatility is influenced by three main inputs: realized volatility, current stock price levels, and upcoming earnings.

Recently, implied volatility temporarily fell below realized volatility. However, as realized volatility began to decline, implied volatility remained elevated in anticipation of the upcoming earnings event.

The stock typically moves by about 7% on earnings, but this time the options market is pricing in a 9% move, reflecting the recent increase in volatility.

With TGT trading lower ahead of earnings and short interest climbing to multi-year highs, sentiment appears increasingly negative. Elevated implied volatility and historical patterns reinforce a bearish bias. The setup suggests heightened risk of downside follow-through post-earnings, consistent with prior high-short-interest events.

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