The stock opened higher Friday on the news but the strength was short-lived.
Shares of Walmart traded as high as $122.79 shy of its semiannual risky level at $126.15. Then it declined to as $114.28 which is below its annual pivot (or magnet) at $116.15.
My call is to trade the range between its quarterly value level at $107.04 and its semiannual risky level at $126.15.
Fundamentally, the stock isn't cheap. Its p/e multiple is 24.81 with a puny dividend of 1.73%, according to Macrotrends.
Walmart missed earnings-per-share estimates on Feb. 18, ending a seven-quarter winning streak.
The stock closed Thursday at $118.84, flat year to date. The stock is 7.2% below its all-time intraday high of $128.08 set on March 18.
Even so, its in bull market territory 23.1% above its 52-week low of $96.53 set on March 28, 2019.
Longer term, shares 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 18.7% to a cycle low of $85.78 set during the week of Dec. 28, 2018.
The Daily Chart for Walmart
Courtesy of Refinitiv XENITH
Walmart 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 to indicate that higher prices lie ahead.
This buy signal is close to ending now!
Note that the 50-day and 200-day SMAs are converged at $115.63 and $115.48, respectively.
If the stock ends the week below these moving averages a “death cross” will form next week. This occurs when the 50-day falls below the 200-day to indicate downside risk.
Note how the stock failed at is semiannual risky level at the top of the chart at $126.15. The stock is trading back and forth around its annual pivot at $116.42 in today’s trading. The downside is to the quarterly value level at $107.04.
The Weekly Chart for Walmart
Courtesy of Refinitiv XENITH
The weekly chart for Walmart shows that the stock is trading back and forth around its five-week modified moving average of $115.40.
A weekly close above keeps chart positive. A close below will be a downgrade to neutral.
The downside risk is to the 200-week simple moving average or “reversion to the mean” at $91.11. This average 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 50.66 this week up from 44.95 on March 13.
Back in October this reading was above the 90.00 threshold as an “inflating parabolic bubble” formation which led to a decline from the mid-November high of $125.38 to the low of $102.00 set this week.
Trading Strategy: Buy weakness to quarterly value level at $107.04 and reduce holdings on strength to the semiannual risky level at $126.15. The annual pivot remains at $116.42.
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 last nine closes in these time horizons.
Monthly levels for March were established based upon the February 28 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 last 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.