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Walmart: WMT Stock Reaches a “Rocket Launch” Setup

Economic data has grown at a decelerating rate for months now, and even job growth, which is typically late cyclical, looks to have peaked out earlier in the year.

beatthebell_185x185When the rate of change in economic data begins to slow down, investors look toward certain consumer staples stocks such as Wal-Mart Stores, Inc. (NYSE:WMT) as shoppers buy a larger amount of household goods at Walmart.

Well, after what looks to have been a wash-out sale in WMT stock last week, active investors now have a good risk/reward entry to buy Walmart shares for a nice-sized bounce.

Walmart has been under consistent pressure after the stock moved to a blow-off top in January and exhausted itself. The selling in WMT stock has also been particularly persistent since the company’s last earnings report in mid-May; shares haven’t enjoyed any buying pressure until just recently.

WMT Stock Charts

If we look at Walmart stock through the multiyear weekly lens on the below chart, we see that unlike the broader market, WMT didn’t do much directionally from late summer 2012 until late October 2014; it was mostly range-bound.

From late October 2014 into January 2015, Walmart shares enjoyed a big rally — but one that wasn’t supported by momentum and ultimately failed miserably. On the chart below, we see the inverse V-shaped price action of the 25% October-January rally followed by a complete retracement.

Last week, WMT stock marginally undercut last October’s lows, but also reached a bigger-picture multiyear lateral support area in the low $70s. From here, a good-sized bounce finally stands a better chance.

wmt stock walmart shares weekly
Click to Enlarge

On the daily chart, we see that the selling pressure has been particularly persistent since May, as WMT stock traded in an atypically narrow range. All told, since January, Walmart shares have dropped a total of 23% — such a straight-line drop for Walmart is a strong feat, but one that is statistically unlikely to last at this rate.

As such, over the past four trading sessions, WMT stock has completed my “rocket launch” setup — a bullish call for the stock’s near to medium-term future: The selling pressure last Wednesday and Thursday ultimately led to a bullish reversal candle (bears exhausted) last Thursday, which on Monday was added to with follow-through buying that now looks to have confirmed last Thursday’s lows.

wmt stock charts daily
Click to Enlarge

Very simply, active investors could now use last Thursday’s lows just north of the $70 mark to lean against on the long side for a bounce into the  $75 area for a first upside target. Options may be used to gain some leverage on this trade setup.

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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

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