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Walgreens’ Uptrend Busted After Drugstore Giant's Earnings Miss; What's the Strategy?

Should investors boot Walgreens Boots from their portfolios after the drugstore giant missed earnings expectations? Let's turn to the charts.

U.S. markets are making their way higher Wednesday, boosted by sentiment that the conflict between the U.S. and Iran isn’t likely to escalate from here.

But not all stocks are enjoying tailwinds in today’s session.

Shares of drugstore giant Walgreens Boots Alliance  (WBA)  are off more than 6% on the heels of the firm’s fiscal-first-quarter earnings report. 

Excluding one-time items, the Deerfield, Ill., chain's earnings came in at $1.37 a share for the quarter ended Nov. 30. Analysts were looking for earnings of $1.41, on average.

And while today’s drop is painful, it might be the start of a prolonged bearish move in this $50 billion drugstore stock.

So, is it time to boot Walgreens Boots from your portfolio? To figure that out, we’re turning to the charts for a technical look.

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At a glance, it’s hard to miss the fact that Walgreens’ chart has been under considerable pressure in the past year. 

In the trailing 12 months, Walgreens Boots has shed more than 19% of its market value on a total-return basis, compared with a 28.6% return in the rest of the S&P 500 over that time frame.

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That’s not a performance gap – it’s a performance chasm.

And while the shares this past fall looked as if they were attempting to carve out a long-term bottom, today’s earnings-induced selling is pulling the rug out from under that turnaround attempt.

Since August, Walgreens shares had been making their way higher in a very well-defined uptrending channel. 

Today’s gap lower at the open definitively violated that uptrend, signaling that any excess demand for shares below trend-line support has been absorbed by increasingly eager sellers. 

From here, lower ground looks likely in the intermediate term, as Walgreens Boots tries to find its footing.

Earnings misses have been relatively rare for Walgreens Boots in recent years, but they’ve been pretty painful. The last time the firm posted a miss, the shares retreated 15.6% in the month that followed.

Even during this stock’s short-lived rally over the past six months or so, Walgreens Boots’ relative performance against the S&P 500 has been fairly tepid. 

At the same time, peers like CVS Health  (CVS)  and Rite Aid  (RAD)  are each holding onto their uptrends at this point.

With a trend-line violation today and Walgreens’ status as the industry laggard, it makes sense to steer clear of the shares until WBA can reestablish some semblance of an uptrend.