When you’re super successful at something, there are always plenty of haters ready to fire arrows at you. In the mega-retail space, there is no company more successful than Walmart (WMT), and there is no company with more haters in tow.
Now, before I give you my opinion on WMT from a trading perspective, I want to come right out and say that I am about as far away from a Walmart hater as it gets. I think the company is an outstanding example of a true American success story, and I think that by making so many goods available at such low prices, the entire global economy benefits.
Click to Enlarge Of course, Walmart’s benefit to the global economy, along with my reverence for the company as a tremendous success story, does not cloud my judgment when it comes to identifying a clear technical, tradable trend in the stock. On this front, WMT shares are looking extremely haggard. They’re also looking like a great shorting opportunity.
The chart here of WMT shows what technical analysts call a double-top trading pattern. The first of these tops happened in May, when the stock moved to its closing high of $79.86. The subsequent move in the shares took the stock back down to $73.03 about a month later.
WMT shares moved up again after that June low, but this time shares only made it back up to $78.77 in August, a level that can be considered the second top in the double-top pattern. Since that second top, shares have fallen back down to $72.58.
Why is this price level important?
Well, the stock now trades below key support at the 200-day moving average at $72.96. The breaching of this key technical level is clearly a bearish sign for WMT shares. It’s also a clear signal telling traders to sell WMT if they own it, or to put on a short position in the shares.
If you do go the short route, then the next real level of support you’re looking at is the 2012 lows at about $67.60. A move to those levels represents nearly a 7% decrease from current levels, or if you’re short, about a 7% gain.
As we are about to enter September, historically the worst month for the markets, downside in a haggard stock like WMT could accelerate even faster than normal, and that makes this retail giant a great short sale.
At the time of publication, Jim Woods had no positions in any of the securities mentioned.