Wal-Mart Stores, Inc. (NYSE:WMT) — The world’s largest retailer slumped 4.4% on Tuesday following a weaker-than-expected earnings report. Through a technical lens, however, WMT stock looks increasingly exhausted on the downside after an already steep year-to-date slide and may soon be ready to reverse course and head higher.
Wal-Mart reported earnings per share of $1.03, a penny below estimates, and revenue of $114.8 billion versus the $116.3 billion expected. While the top line was marginally lower, e-commerce sales were up around 17%, and guidance for second-quarter EPS came in at $1.06-$1.18, compared with analysts’ consensus estimate of $1.17. In other words, it wasn’t all bad news.
On May 13, I shared my thoughts about how to trade WMT stock after this earnings report. One of the scenarios discussed was a post-earnings sell-off that would lead to deeply oversold readings, thus setting up a long-side trade.
Looking at the daily chart, we see that since its January highs, WMT stock has slipped into a downtrend, falling nearly 17%. With Wednesday’s continuation selling, shares also reached a diagonal support line that stretches back about 12 months.
Notably, the Relative Strength Index (RSI) has not yet made a lower low. As such, it is showing some positive divergence while the sell-off of the past two days has pushed shares well below their near-term moving averages, specifically the 8- and 21-day.
An oversold bounce is increasingly likely. Active investors should buy WMT stock on the next bullish reversal day with a first upside target of $80.
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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.