Wal-Mart Stores, Inc. (WMT) — WMT stock closed up 0.7% on Thursday, as the world’s largest retailer announced a $49 a year “ShippingPass” subscription service (down from its $50-a-year, three-day service) meant to compete with Amazon.com, Inc.’s (AMZN) Prime. But the gains failed to reverse Wednesday’s breakdown, which came amid heavy selling in the retail sector as investors grew nervous about consumer spending following a disappointing quarterly report from Macy’s, Inc. (M). And WMT stock now looks to be offering traders a good short-side opportunity.
Rising labor costs, increased spending on e-commerce and a strong U.S. dollar have taken a toll on the company’s profits. Earnings declined almost 10% in fiscal 2016 (ended in January), and analysts predict they will fall another 10% this year to $4.14 per share.
Wal-Mart is scheduled to deliver its next quarterly earnings report on May 19. Analysts are looking for a 14% decline in earnings to 89 cents per share on a 1.4% drop in sales to $113.2 billion.
Turning to the chart, WMT stock has been in a bear market since falling from its all-time high above $90, made in January 2015. Shares plunged 38% to a low near $56 in November before rebounding.
But the rally is running into difficulty at the crucial resistance line at $68, which coincides with the 50-day moving average.
WMT stock turned down from that line on a gap down on Wednesday and, as mentioned, failed to recover from the breakdown on Thursday. The next support is at the 200-day moving average at $64.70, but this is likely to fail as sellers have overcome buyers at crucial technical areas recently.
Therefore, sell WMT stock short at $66 or higher with a target of $58 for a potential gain of 12%. A stop-loss order should be entered at $70 to protect against theoretically unlimited losses in the event of a rally.
