Wal-Mart Stores, Inc. (NYSE:WMT) is higher by about 16% year-to-date. But that progress actually includes a 5.5% pullback in Walmart stock over the past couple of weeks. I wouldn’t make a big deal about it, except this stumble has occurred at a bigger-picture resistance level.
My advice: Watch WMT stock carefully in the coming weeks, because this pullback could turn into something meaningful and ugly.
Walmart bears are quick to point out that increased pricing pressure in the retail space (a good portion of which is on Walmart’s shoulders), as well as competition from e-tail giant Amazon.com, Inc. (NASDAQ:AMZN). Bulls still like the defensive nature of Walmart stock. Specifically, consumers tend to shop more at WMT during economically challenged times.
Me? I respect both dynamics at work. But investing and trading are exercises in risk management. So when price action makes a meaningful move at a meaningful cross-section, I take notice.
So, before we look at the below charts, remember: Some stocks are better watched on weekly charts than daily charts. WMT is one of those stocks; it gives better signals on its weekly charts.
Walmart Stock Charts
On the weekly multiyear chart, we see that the sharp rally off the November 2015 lows two weeks ago pushed WMT stock back into an area of former technical support in the low to mid-$70s. This horizontal area now also lines up with Walmart’s 100- and 200-day simple moving averages to form a sort of confluence technical resistance zone. Walmart stock promptly rejected this area two weeks ago, falling more than 5%.
From a candlestick perspective, Walmart showed exhaustion buying two weeks ago. On a weekly closing basis, that resulted in shares ending lower. Then, last week, WMT shares showed follow-through selling, which technically confirmed an intermediate-term top in the stock. For now.
On the daily chart, we see that the last two weeks of selling pressure have since pushed Walmart stock down to its blue 100-day simple moving average. This might act as support in the near-term, but for now, just consider it a reference point. A break below this MA on at least a daily closing basis could force WMT to mean-revert even lower toward its red 200-day moving average, which currently resides around $67.
If you want to take a stab on the short side of Walmart stock, feel empowered. I would suggest buying cheap puts or put spreads on WMT, as implied volatility still is low in both absolute and relative terms.
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