The market is starting to show some signs of weakness as the risk-off trade appears to be settling in while earnings are only providing lackluster results for traders.
What has gone unnoticed are some large companies like Wal-Mart Stores Inc (NYSE:WMT) that have been moving counter to the bullish trend along with the growing list of companies that have simply extended themselves too far and too fast like Altria Group Inc (NYSE:MO) and Walt Disney Co (NYSE:DIS) as they prepare to announce their earnings. Are these opportunities to sidestep a “sell the news” situation? We’ll take a look at all three in today’s Three Big Stock Charts.
Wal-Mart Stores Inc (WMT)
Walmart’s chart has a new enemy in the new Presidential Administration. Last week’s flurry of executive action sent WMT’s chart to the downside. What had been a potential correction has now turned into a bearish trend as Walmart stock has taken out key support.
The move below $67.75 puts WMT shares back into a long-term bearish trend — one that it has been trying to root its way out of for more than the last year. Unfortunately, this trend has remained strong for Walmart.
Namely, the 20-month moving average. This trendline is widely considered the line of demarcation between bull and bear market for indices and stocks. In WMT’s case, this trendline has been declining since May of 2015 and the stock reflects a 15% loss since then.
While the long-term traders may want to avoid the stock, short-term traders may get an opportunity to profit from an oversold bounce soon. According to the short-term RSI, shares of Walmart are bouncing in and out of oversold territory. All that is needed is a technical trigger at this point.
Looking at today’s action, a hold at $66 may be what the traders need as this may bring some short-term bulls into the mix. The likely target for this rally is the $68-mark with a stretch to $69.50, the site of WMT stock’s 50-day moving average. From there though, expect the sellers to take control again and break the shares towards a target of $62.
Altria Group Inc (MO)
Altria shares are flying in thin air as the stock has now extended itself well into overbought territory. This is a danger for MO stock as the company prepares to announce its earnings on Wednesday, before the market open.
Looking at the last few earnings announcements, Altria shares have had a tendency to see a flurry of “sell the news” activity after its announcements. This runs the risk of being exaggerated as MO stock is now trading at/near new all-time highs.
Altria stock also slipped back into its Bollinger Bands last week, as the volatility rally that started off hitting its 20-day moving average had run its course. This suggests MO stock may have more to give to the downside on anything other than an outrageously positive earnings report.
According to the charts, the upside potential for Altria is limited as the stock is stretching itself outside of normal distributions with its recent parabolic move. The shares show downside risk to the $69-level, where technical traders should be ready to pounce on MO stock should it hold this short-term trading trendline.
In the bigger picture, the stock remains a buy for both traders and investors alike, just not at these inflated prices.
Walt Disney Co (DIS)
Disney stock continues to mount its bullish charge higher after placing a bottom in October. DIS stock has outperformed the market more than threefold year-to-date as stronger consumer confidence and spending continue to have positive implications for this discretionary company.
Disney shares peaked into overbought territory yesterday on a strong rally based in large volume as the stock received an upgrade from Morgan Stanley. The DIS buying surge should give way to a rest over the short-term, as traders will start to sideline themselves ahead of the upcoming earnings announcement on Feb. 7.
In addition, we’re seeing some resistance at the top Bollinger Band for the shares. The straight technical read of this is that Disney stock will pull back because we are not seeing the volatility style trade to break the band at this time. But wait since earnings are just around the corner.
Longer-term, DIS stock is also enjoying an increase in volume and cash flow as investors and money managers are picking upon the transition back into a technical bull trend. Disney stock closed above the 20-month moving average last month and will post the second close above this bull/bear line today.
Historically, the market’s response to earnings has been tepid at best for DIS shares. For this reason, we’ll expect to see some selling ahead of the report, which will work off the overbought readings and potentially offer a better entry for those looking to trade the “Mouse House” results.
For now, watch a pullback to $108 to act as a good resting place before the stock’s earnings.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
