Before the start of Thursday’s trading, Walmart (WMT) reported marginally better-than-expected results for its second quarter, but the world’s largest retailer cut its outlook for the full year 2014.
Shares of WMT stock actually closed higher on the day, but given the technical picture, Walmart appears to have limited upside, and active investors might find opportunity in shorting the stock in coming weeks.
Walmart earnings came in at $1.21 per share, 2% lower year-over-year but in line with analyst expectations. Revenues climbed 2.8% to $119.3 billion, topping analyst expectations for $118.98 billion.
However, Walmart is looking for third-quarter same-store sales to be roughly flat, and it now expects fiscal 2014 earnings to come in a range of $4.90-$5.15 per share, down from a previously guided range of $5.10-$5.45.
Bigger-picture, WMT stock sometimes is looked at as a safe haven given that it’s a classic consumer staples stock, and consumers tend to shop there regardless of the state of the economy. At the same time, one can look to shares of WMT as a leading indicator, as shoppers can be very price-sensitive on a vast array of products, and thus signal looming economic weakness.
WMT Stock Charts
Looking at the multiyear chart of WMT stock with weekly increments, note that the relative strength indicator, or RSI as it is often referred to, topped in July 2012 while price didn’t top until December 2013. This so-called negative divergence between momentum and price is a bearish development for price, and should ultimately lead to lower prices still in Walmart stock.
Since April 2013, WMT stock also has developed what technical analysts refer to as a head-and-shoulders pattern (blue boxes), with the December 2013 top being the head and the lower highs left and right of it being the shoulders. The neckline of this formation, the black line, has served as support several times over the past 12 months or so and increasingly looks vulnerable to break.
On the daily chart, note that since the December 2013 top, WMT stock also has begun to trade in a narrowing wedge. The stock’s medium- and longer-term moving averages — the 50-, 100- and 200-day moving averages — are all firmly above the current price and acted as resistance in early July.
Over the past couple of weeks, with the broader stock market weakness, WMT stock fell to the the October 2013 support line and has been consolidating there ever since.
With the above bigger picture in mind and the broader stock market also giving us topping signs, WMT stock favors a move lower in coming weeks/months.
How far could it fall? A move back into the high $60s does not seem improbable.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.