Walmart: How to Get Better Value From WMT Stock

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If you’ve heard the expression “Size matters” and are a follower of that sort of thing, it’s likely you’re familiar with Wal-Mart Stores, Inc. (NYSE:WMT).

Walmart WMT stock

Actually, considering Walmart is the world’s largest retailer, I wouldn’t put it past readers if they’ve shopped there at least once, if not more, for one of its notorious bargains. Well … a similar opportunity is knocking for investors, who can take advantage of those same endearing qualities, just in WMT stock instead.

Currently, Walmart stock’s chart is allowing bullish investors to take advantage of a “size matters” technical situation in WMT. As I’ll explain below, this should prove to be great news for WMT stock buyers.

What’s more — and much like when shoppers feel good about their bargain purchase — Walmart stock is just removed from a test of prior resistance and offering a discounted, relative-value entry point for investors.

WMT Stock Technical Picture

A belief on Wall Street that technicians ascribe to is relevant to WMT stock right now. Similar to physics, the belief is the longer a stock’s consolidation or congestion area persists, the stronger the next directional leg will be when the pattern resolves itself. If the breakout is above resistance, look for a solid move higher in the stock, and vice versa for a breakdown situation.

WMT stock chart
Source: Charts by TradingView

As you can see from the chart above, Walmart stock has broken out to the upside. The observation is based on the rather lengthy and lateral congestion area denoted by the parallel lines, which were finally cleared last November after about one-and-a-half years of work.

That’s the “size matters” part of our technical thesis.

The second element that makes WMT so attractive right now is after rallying out of its technical consolidation, Walmart stock has pulled back quite constructively. Since mid-January, shares of WMT have corrected a tad more than 11% at recent lows.

In of itself, for a mega-cap stock, that’s not exactly chump change. But what makes this the “discounted, relative-value entry point” noted earlier is the corrective action in WMT has successfully tested and held prior resistance.

Additionally, WMT stock has confirmed the test of support on the weekly by establishing a doji candlestick low. A doji is known for its reversal characteristics. Last week, a breach above the high of the doji signaled a resumption of the larger pattern breakout could be in place. An “in-the-making” Stochastics crossover in oversold territory appears to be confirming the weekly doji low.

From a risk standpoint, WMT’s pattern low acts as a good money management tool. What more could a bargain-hunting bull want?

I’m glad you asked.

WMT Bullish Option Shopping

As a former options market maker and private investor that still looks for stronger value and positioning with options whenever possible, a Walmart long call purchase appears to be a solid substitute strategy in lieu of buying WMT stock.

After checking Walmart stock’s listed options, the WMT June $85 call looked attractive for buyers at a price of about $1.10 and shares of WMT near $82. Implied pricing is fair at 14% to 15% and within a longstanding trading range, so no great shakes there. But, given the size of the pattern breakout and 10%-plus pullback over the past couple months, a long June out-of-the-money call purchase has ample time to double in price or more, without requiring too much technically of WMT shares.

Priced conservatively at expiration and sans time or extrinsic premium, a move higher of 6% — or just over half the percentage amount of WMT’s pullback — would result in the long call doubling in price to $2.20. If a rally were to occur sooner rather than later, the stated 100% return of this long call would require a smaller move in Walmart stock.

Considering that, not to mention the truly limited risk characteristics offered by a long call position, means being bullish on shares with more relative value, in this trader’s opinion.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. Mr. Tyler currently holds no positions in WMT in his personal or managed family accounts but may initiate, for better or worse, a position in two or more business days following the publication of this article.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/walmart-stock-wmt-value/.

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