Shares of Wal-Mart Stores Inc (NYSE:WMT) on Tuesday rose nearly 0.7% while the broader stock market experienced selling pressure. WMT stock bulls surely could come up with a myriad of reasons why this bounce was great and how the stock is a defensive play when turmoil hits the stock market.
From where I sit, however, one day does not make a trend, but the stock does offer an interesting trade with well-defined reward-to-risk from a technical perspective.
As the debate rages on whether Walmart can survive the battle against Amazon.com, Inc. (NASDAQ:AMZN), there will likely be plenty of volatility around WMT stock’s longer-term trajectory.
While it is crucial to gain perspective on any given market or stock through different time frames, it is just as critical to respect the fact that a near-term time frame often time has little to do with a longer-term one through a trading lens. This arguably holds even more true when a multiyear chart looks as ‘messy’ as that of WMT stock currently does.
In other words, a near-term trade sometimes is just that and should be treated in isolation of a bigger picture trend … again, particularly if the multiyear chart paints an aimless roller coaster-like picture.
WMT Stock Charts
Looking at the multiyear chart of WMT stock we see that after a failed rally attempt in late 2014, the stock quickly and severely reversed course in 2015, leading to a nearly 40% peak-to-trough move in about eleven months.
From November 2015 into this past May, the stock then lifted by more than 40%. What makes this so crazy to many fundamental investors is that this is supposed to be an old steady stock and not a highly volatile mover.
In my eye, what many longer-term investors are missing at this juncture in WMT stock is that the retailing industry is going through a revolution as online shopping becomes an ever larger part of people’s daily lives. That in turn leads to more volatility in older brick-and-mortar names like Walmart, who however is doing their best to foray into the online world in a more meaningful way.
On the daily chart, we see that while WMT stock is still higher by about 10% year-to-date, it took a good hit along with other retailer stocks on June 16. Through the lens of technical analysis, that move, however, merely took off some of the near-term overbought readings in the stock as it found support in a confluence zone made up of horizontal (black line) support as well as the blue 100 day simple moving average.
The setup here is a straightforward so called “gap-fill” trade, whereby one bets on the down-gap (marked by the blue box) from mid-June ultimately gets filled if the stock rallies. Over the past six trading days, WMT stock has consolidated nicely and a push and hold above $76.50 could start to fill the gap with an upside target closer to $79. Any bearish reversal would be a stop-loss signal. Remember, one can always get back into a trade.
Check out Anthony Mirhaydari’s Daily Market Outlook for June 28.
Take Serge’s quiz to find out which trading strategy best suits your personality.
Tell us what you think about this article! Drop us an email at editor@investorplace.com, chat with us on Twitter at @InvestorPlace or comment on the post on Facebook. Read more about our comments policy here.
