Retail giant Walmart (WMT - Get Report) reports earnings before the opening bell on Thursday, May 16. However, its plan to take market share from Amazon (AMZN - Get Report) may be more important than the earnings results. My call is to buy Walmart on weakness down to its 200-day simple moving average at $96.76, or sell strength to annual and quarterly risky levels at $103.41 and $107.77, respectively. This trade is influenced by its May pivot at $100.37.
On Tuesday, May 14 Walmart announced it will be offering next-day delivery on its most popular items. Walmart has been building a more efficient e-commerce strategy that will offer next-day delivery from its network of brick and mortar stores strategically located around the country. This is not going to happen overnight, it's a longer-term strategy.
Can this compete with Amazon? Two weeks ago, Amazon upgraded its free shipping program to Prime members who pay $119 per year for membership.
Walmart is a component of the Dow Jones Industrial Average and lags the average so far this year. Walmart is up 7.7% year to date with the Dow up 9.5%. Walmart set its 52-week intraday high of $106.21 on Nov. 12 then declined by 19.2% to its Dec. 24 intraday low of $85.78. This decline is being consolidated in 2019.
Analysts expect Walmart to report earnings of $1.02 per share when it reports before the opening bell on Thursday, May 16. The stock is not cheap as its P/E ratio is 20.30 with a dividend yield of 2.12%, according to Macrotrends. When the retailer reported its earnings for the quarter ended in January on Feb. 19, a positive reaction pushed the stock to its 2019 intraday high of $104.18 on Feb. 19, which was just above its annual risky level at $103.41.
On the positive side, some say that the world's largest retailer will continue to show sales growth both online and in stores. But beware, expanding its competition with Amazon will be expensive.
The Daily Chart for Walmart
Courtesy of Refinitiv XENITH
The daily chart for Walmart shows that the stock has been above a "golden cross" since Sept. 17 when the 50-day simple moving average rose above the 200-day simple moving average and indicates that higher prices lie ahead. This signal followed the stock to its Nov. 12 high of $106.21 and was still in play when the stock set its Christmas Eve low of $85.78. Investors looking to buy at the 200-day SMA could have done so between Dec. 17 and Dec. 27, when the average was $90.82. The close of $93.15 on Dec. 31 was an important input to my proprietary analytics. Its annual risky level remains at $103.41 and its semiannual value level is below the chart at $74.29. The close of $97.53 on March 29 was an input to my analytics and the second quarter risky level at $107.77. The close of 102.84 on April 30 was an input and a monthly pivot for May is $100.37.
The Weekly Chart for Walmart
Courtesy of Refinitiv XENITH
The weekly chart for Walmart will be negative, if the stock ends this week below its five-week modified moving average of $100.57. The stock is well above its 200-week simple moving average or "reversion to the mean" at $80.08. The 12x3x3 weekly slow stochastic reading is projected to end this week at 70.20 down from 72.95 on May 10.
Trading Strategy: Buy weakness to the 200-day simple moving average at $96.76 and reduce holdings on strength to its annual and quarterly risky levels at $103.41 and $107.77, respectively. The monthly pivot at $100.37 has been a magnet since May 2.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.