WMT Stock: Walmart’s Path of Least Resistance Is Up

Shares of Wal-Mart Stores, Inc. (NYSE:WMT) got a boost in Wednesday’s trading session, pushing the stock past an initial technical line of resistance. While WMT stock still has plenty of obstacles to overcome, the odds increasingly favor better performance by Walmart, both in absolute terms and relative terms (vs. the broader stock market and consumer staples) over the coming months.

aapl stockWhen I last discussed Walmart on July 7, WMT stock in the days prior had exhibited exhaustion selling, leading me to declare the “rocket launch” setup with an initial price target in the $75 area. Since then, the stock has continued to act constructively and now looks set to move into the high $70s over the next few months.

When we talk about Walmart, it’s important to have some context. When the economy’s rate of growth slows, people tend to flock to Walmart for shopping, and investors in turn bid up WMT stock. And with the rate of change in economic data having slowed all year at the margin — just as we find ourselves very late in a cyclical bull market and economic recovery cycle — the time might be right for WMT shares to shine again soon.

WMT Stock Charts

Looking at WMT stock in relative terms versus the consumer staples sector, as represented by the Consumer Staples SPDR (NYSEARCA:XLP), we see that Walmart shares have massively underperformed year-to-date, as well as over the past few years.

Through a technical lens, the stock’s year-to-date price movement in relative terms has taken the shape of a falling wedge pattern — but if Walmart can break out of that wedge to the upside, it would have obvious bullish implications.

Walmart vs. XLP chart
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On the multiyear chart of WMT stock, we see that the price movement so far in 2015 has been a one-way street to the downside, resulting in a retest of a major area of support near the $70 level. Both the duration and slope of the decline since January has been extensive, and this multiyear area of support is a good an area as any for a better bounce to occur.

Walmart weekly stock chart
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On the daily chart, we see that the bullish reversal day/bearish capitulation price action from July 1 remains in place, and that after bumping into its 50-day simple moving average (yellow line) in mid-July, WMT stock in late July formed a higher low versus the early July lows. With Wednesday’s 2.44% rally, Walmart shares managed to close above their 50-day moving average for the first time since early February, and momentum indicators are also curling back up.

Walmart daily stock chart
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Active investors and traders could look to jump on board the stock here for a push into the mid- to high $70s, using the July 1 lows as a last stop-loss area.

From a risk management perspective, I would be remiss not to mention that Walmart is scheduled to release its next batch of earnings on Aug. 18, which is to say that trading positions should be sized right (small) through this earnings announcement.

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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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