Shares of retailing giant Walmart Inc (NYSE:WMT) dropped sharply on Tuesday as the company reported less-than-satisfactory fourth-quarter results and lowered its forward guidance. As a result of the down-gap motion on heavy volume in WMT stock, a short-side trade now sets up for active investors and traders to take advantage of.
On the back of the Q4 earnings miss, investors were quick to point out the continued shadow of Amazon.com, Inc. (NASDAQ:AMZN) hanging over the retail sector and cannibalizing the industry. While I personally am a true believer in the Amazon story, I do not see it ultimately being able to push out a retail giant like Walmart.
In other words, WMT stock in my eye is not a longer-term short.
However, because opportunities for trades arise in all time frames, today’s trade idea in WMT stock is a tactical short-side trade idea with a well-defined profit target.
WMT Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
To gain some perspective on the bigger picture trends of WMT stock note that before it began topping out in late January (along with the broader stock market) it saw a near vertical leap higher starting in October 2017. This move brought the stock to the upper end of its big picture trading range and also pushed it to historic overbought readings as per the MACD momentum oscillator at the bottom of the chart.
From this angle, the recent pullback in the stock, including Tuesday’s post earnings tumble is merely a mean-reversion move off the upper end of its trading range. Considering the steep multimonth ascent, however, this picture also indicates that WMT stock could mean-revert plenty lower before staging a next leg higher.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that Tuesday’s down-gap sell-off was wave two of selling pressure that began setting in late January. The 10% decline in WMT stock also pushed it below its blue 100-day simple moving average as well as into a still unfilled up-gap area from November 2017.
Given the newfound downside momentum from the post-earnings sell-off, a next downside target for WMT stock now looks to be at the bottom of the unfilled gap, around the $90 area. As a second downside target, traders could use the red 200-day simple moving average. Stop losses should trigger on the back of any significant daily bullish reversal.
Check out Anthony Mirhaydari’s Daily Market Outlook for Feb. 21.
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