This happens because the circle node's position is at origin, and it draws the path in a rect starting at (x,y). So the node's frame is stretched to encompass everything between (0,0) to (x+TARGET_RADIUS, y+TARGET_RADIUS).
You can check this out for yourself, by visualizing the circle's frame:
SKSpriteNode *debugFrame = [SKSpriteNode spriteNodeWithColor:[NSColor yellowColor] size:circle.frame.size];
debugFrame.anchorPoint = CGPointMake(0, 0);
debugFrame.position = circle.frame.origin;
debugFrame.alpha = 0.5f;
[self addChild:test];
This reveals the actual clickable region (on OSX):
To fix your issue, try this:
circle.path = [UIBezierPath bezierPathWithOvalInRect:CGRectMake(-TARGET_RADIUS/2.0f, -TARGET_RADIUS/2.0f, TARGET_RADIUS, TARGET_RADIUS)].CGPath;
and add
circle.position = CGPointMake(x, y);