Walmart Stays Above Annual Value Level - Here's the Trade

Buy Walmart on weakness to its annual pivot at $116.41 and to its 200-day simple moving average at $113.92. Reduce holdings on strength to its semiannual risky level at $126.15.
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Walmart  (WMT) - Get Report reported weaker-than-expected earnings, ending a winning streak of seven consecutive quarters. 

But after a bit of weakness early on, the stock has stayed above its annual value level at $116.42, as the Bentonville, Ark., retail giant's board declared an increased dividend.

The earnings metrics were disappointing but that may have been caused by a shorter holiday-shopping period. Here’s the earnings details as analyzed by TheStreet.com.

A look at the technicals shows Walmart held its 200-day simple moving average at $112.88 on its daily chart on Jan. 27. The weekly chart ended last week positive, which favored a positive reaction to the earnings news.

The stock ended last week at $117.89, down 0.8% year to date and in bull-market territory 22% above its 52-week low of $96.53 set March 28, 2019. 

It’s 6% below its all-time intraday high of $125.38, set on Nov. 14.

Longer term, shares of Walmart had two major corrections. 

From a high of $109.98 set during the week of Feb. 2, 2018, the stock fell 25% to a low of $81.78, set during the week of May 25, 2018. 

Then, from a high of $105.50 set during the week of Nov. 16, 2018, the stock fell 19% to a cycle low of $85.78, set during the week of Dec. 28, 2018.

The stock is not cheap, as its p/e multiple is 23.7 with a dividend yield of 1.8%, according to Macrotrends.

The Daily Chart for Walmart

Daily Chart For Walmart

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, 2018, when the 50-day simple moving average rose above the 200-day simple moving average. The move indicated that higher prices lay ahead. 

This buy signal was in play when the stock set its Christmas Eve 2018 low of $85.78. When a stock is above a golden cross, investors should always buy weakness to the 200-day SMA.

The close of $118.84 on Dec. 31 was an important input to my proprietary analytics. Its annual pivot for 2020, $116.42, was a value level before the earnings report. The semiannual risky level for the first half of 2020 is $126.15. The value level for the first quarter is $107.04.

The close of $114.49 on Jan. 31 was an input to my analytics, and its risky level for February is $129.22. This week’s value level is $113.24.

The Weekly Chart for Walmart

Weekly Chart For Walmart

Weekly Chart For Walmart

Courtesy of Refinitiv XENITH

The weekly chart for Walmart is positive, with the stock above its five-week modified moving average of $117.14. 

The stock is well above its 200-week simple moving average, or reversion to the mean, at $90.18. That was last tested during the week of July 14, 2017, when the average was $73.34. 

The 12x3x3 weekly slow stochastic reading is projected to rise to 32.55 this week from 23.05 on Feb. 14. 

When the stock spiked to its all-time high of $125.38 on Nov. 14, this reading was above the 90 threshold as an inflating parabolic bubble. Such a condition is typically followed by a decline of 10% to 20%. The decline to $112.68 set during the week of Jan. 31 was 10%.

Trading Strategy: Buy weakness to WMT's annual pivot at $116.41 and to its 200-day simple moving average at $113.92. Reduce holdings on strength to its semiannual and monthly risky levels at $126.15 and $129.22, respectively.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual and annual levels remain on the charts. Each uses the past nine closes in these time horizons.

Monthly levels for February were established based on the Jan. 31 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

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.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the past 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.