Wal-Mart Store Inc (NYSE:WMT) shares just suffered a two-day puke for the ages. The post-earnings plunge took the ubiquitous retailer down 11% amid big-league distribution. Is it time to abandon Walmart stock or is this a mere speedbump on the road to new heights?
As usual, we’ll let the charts be our guide.
Anytime a correction strikes, shattering support levels on the daily time frame I always find it instructive to take a step back an see what damage, if any, has been inflicted on the weekly chart.
Heading into its latest earnings release, the weekly chart of WMT was already running hot and in need of a pullback. To wit: Walmart ran from $80 to $110 with little pause whatsoever.
That’s a torrid pace ripe for disruption at the slightest whiff of disappointment. This go around that catalyst arrived in the form of mediocre earnings and guidance.
But while the sudden price drop has taken out a minor support level at $96 and the 20-week moving average, the longer-term weekly uptrend remains very much intact. In fact, WMT stock could retreat as far as $85 before I’d be concerned that the bigger bullish trend is in danger.
One level worth eyeing is $90. It served as significant resistance back in 2014 and could very well reverse roles to play support in the days ahead. Throw it all together, and I suggest viewing this as one big buying opportunity.
Buy the Walmart Stock Dip, Delicately
Rather than storming in, guns a-blazing. I suggest a more delicate approach to picking up bullish exposure here. We can use WMT options to gain some exposure now, but leave ourselves open to getting more at lower prices.
Sell the WMT April $90/$85 bull put spread for $1.20. If you want to leave the door open for upping the ante if the stock falls further, then scale-in. That is, sell half now at $1.20 and wait to sell the other half at $1.80 if the spread value ever gets there.
As long as WMT sits above $90 at April expiration, you will capture the entire premium.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.