Shares of the largest U.S. retailer, Walmart (NYSE:WMT), for the year-to-date are lower by around 12%, which inflicted pain on plenty of chart chasers in the early part of the year. For the past four months, WMT stock has found itself in a new consolidation phase which, in my eye, now stands a good chance of resolving to the upside for a trade.
Among the retailer analyst community, I am currently hearing a debate whether the “trade war” fears would serve as headwinds or tailwinds for a name like Walmart. The bears argue that higher-priced goods will reduce sales while the bulls argue for the relative safety of WMT stock due to its consumer staples nature … i.e. people will still shop at Walmart regardless of trade wars.
Personally I am in the latter camp for a trade but do see the legitimacy of the bear argument in the medium term should trade war tensions strengthen further.
WMT Stock Charts
Moving averages legend: red – 200 month, blue – 100 month, yellow – 50 month
With this in mind, let’s gain some visual perspective by first looking at the multiyear weekly chart of WMT stock. Here we see the dramatic overshooting that the stock did in late 2017/early 2018 as it broke above its 2015 highs as marked by the blue horizontal box. More often than not such strong overshooting moves lead to a pullback … and an overshooting to the downside on the pullback.
So far that is exactly what WMT stock is demonstrating as it broke below the blue bar but did find support at its 2016 simple up-trend that I marked with the blue arrow. In other words, while the stock may be a long way away from recapturing its early 2018 highs, the multiyear up-trend remains intact.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Moving on to the daily chart, we see that as a result of the sharp February drop-off, WMT stock plunged below all its medium-term moving averages and now is nestled up at its blue 100-day moving average. This current juncture also coincides with a well-defined line of resistance (black line) and a push above there could in my mind get the stock moving back up toward the $91 area … i.e. where the red 200-day moving average sits. This area also lines up with the 2015 highs, i.e. the blue horizontal from the weekly chart above.
Thus, the trade setup here is to buy WMT stock around the $87ish area with an upside profit target at $91 and using any strong one-day bearish reversal as a stop loss trigger.
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