Not all of the setups shaping up right now are bullish. Wal-Mart (WMT - Get Report) is an example of a potential downside trade that's been forming for the past couple of months. So while the Arkansas-based retail behemoth has been in rally mode for most of this year, buyers had better beware.
Right now, Wal-Mart is starting to form a double-top pattern, a setup that's formed by two swing highs that top out at nearly the same level. The sell signal (or the short signal for more aggressive traders) comes when shares fall through the trough that separates the tops. For Wal-Mart, that level is $71.At this point, the red flag in WMT is just that: a red flag that becomes a trade signal if shares fall through support at $71. If this stock continues consolidating sideways, it doesn't make sense to sell it let alone bet against it. Momentum broke its uptrend at the start of August, turning into a full-blown downtrend within the last month. RSI is still looking pretty neutral, but if the indicator's downtrend continues below the 50 level, the evidence for a drop is much more compelling. With that in mind, make sure that you're only trading based on price. RSI is a very useful confirmation tool, but it's got limited use on its own. The bottom line is that $71 is Wal-Mart's bottom line in the near-term.
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