2020-01-17 • Updated
Since the end of December, Walmart has been showing a clear downward trend. The stock price left the area of $121.50 per share and dropped by $6. On its way to the current area of $115, it broke through the resistance of the 50-day and the 100-day Moving Averages. Such a non-stop plunge occurred only once during the last year – it was summer 2019. That area is clearly visible as it is the only zone where the price drops to the 100-day MA, marking almost the only serious downslope on the chart. Since then, it has never traded below the 50-day MA. It begs a question – should an investor drop this stock?
Partly, the reversal of the stock price may be ascribed to a dull earnings report released on November 14. We see that this date separates the upward movement of the price from the following consolidation above $118.00 and a downtrend.
On that day, investors were informed that the revenue of the company was $128 billion, falling slightly lower than the forecast. However, the expected $128.6 was not that much above the actual number, and the $1.16 EPS came higher than the expectation of $1.09. Therefore, the report could have had only a limited downward impact on the stock price. In addition, November 14 is still too far away from December-January, although it did undermine potential for a stronger upside during these months.
Could it be New Year sales drop affecting the stock performance? It could be. Amazon took over most of the holiday-season retails sales. In consequence, that led to a significant increase in total US e-commerce sales, while the department-store sales to which Walmart belongs dropped against the previous year. Knowing this, short-term investors could have priced in the coming disappointment from the earnings report on February 18. But that again may be only a short-term view, while the fundamentals do not give any sign of a strategic failure looming in the company horizon.
Another local process Walmart is going through is its business restructuring in India. The recent news informs that the company fired more than a third of its employees in the course of re-grouping its country operations. Once again, from a momentary point of view, that is no good news for the stock price. But for a long-term investor, that is a normal operational procedure for a global company, which wants to change the layout in a region. In fact, such activities are required to ensure company resilience in the long run (we are not defending the company policy, just stating that any business sometimes needs to be restructured to survive).
Therefore, it seems that the stock price has been going down on the news of the local negative impact. Together, such inputs drove the stock into a decline. However, the information available in open sources does not present anything against this stock’s long-term potential to grow. In fact, analysts comment that now may be a good time to buy – exactly while this equity is in an undervalued position.
On the H4, we see a regular bullish divergence formed by the price in relation to the Awesome Oscillator. The question is how long-lasting will be the effect of this indication. If the price eventually gets back to the level of $118, we may consider that the reversal of the downtrend is coming. At the same time, we need to watch the Moving Averages – they all converge right above this level forming a firm resistance. Therefore, if the price gets back to the healthy growth trajectory, it will need to pass all the three, and these will consequently re-group into regular ascending order.
Therefore, despite some troublesome times Walmart has been having recently, there is little reason to get rid of this stock. Hence, for a strategic investor, it is a buy. But watch the moment, and follow the news.
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Bearish scenario: Sales below 80.00 with TP1: 79.60... Anticipated bullish scenario: Intraday purchases above 80.70 with TP: 81.50...
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Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
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