NEW YORK (TheStreet) -- Shares of discount retailer Wal-Mart (WMT) had a huge rise of 25% from a low set in mid-October to an all-time intraday high of $90.97 on Jan. 13. Since then, the stock plunged 15% to a 2015 low of $77.17, set on May 6. As a result of this downside volatility, Wal-Mart shares are below their 50-day and 200-day simple moving averages of $80.30 and $80.79, respectively. The 50-day crossed below the 200-day on May 11, in what market technicians call a "death cross."
To end this technical curse, the stock must pop above these moving averages following the company's earnings report, to be released before the opening bell on Tuesday. Given a positive reaction to earnings and a close this Friday above a key weekly moving average of $80.06, shares of Wal-Mart should begin a tradable rebound.
Wal-Mart is a component of the Dow Jones Industrial Average, which is up 2.6% year to date. The Dow closed Friday at 18,272.56, just below its all-time intraday high of 18,288.63, set on April 27. Wal-Mart is underperforming the Dow 30, with a loss of 7.3% year to date.
Analysts expect the world's largest retailer to earn about $1.03 or $1.04 a share, but there is concern about the company's outlook, given its plan to spend $1 billion on raised wages. The retail giant is increasing its focus on Internet sales, which could put a drag on margins, given shipping costs. Wal-Mart also faces increased health care costs and the strength of the U.S. dollar.
Let's look at the daily and weekly charts for Wal-Mart and provide the key technical levels at which to buy on weakness or sell on strength.
Investors not familiar with technical analysis should begin with the notion that a price chart for a stock shows a road map of past price performance, which provides guidance for predicting future share price direction.
Here's how to read a daily chart. There are two moving averages to follow; the 50-day simple moving average is in blue while the 200-day simple moving average is in green.
Here's how to read a weekly chart. This chart shows weekly price bars going back to the beginning of 2007, and thus includes the crash of 2008, then the current bull market for stocks that began in March 2009. The red line tracks the ups and downs of the key weekly moving average. The green line is the 200-week simple moving average. The red line that oscillates along the bottom of the chart is the momentum reading on a scale of 00.00 to 100.00. A reading below 20.00 is oversold and a reading above 80.00 is overbought.
A technically positive weekly chart occurs when a stock ends a week above its key weekly moving average with the momentum reading rising above 20.00.
A technically negative weekly chart occurs when a stock ends a week below its key weekly moving average with the momentum reading declining below 80.00.
Here's the daily chart for Wal-Mart.
Courtesy of MetaStock Xenith
Wal-Mart had a close of $79.24 on Friday, giving the stock a loss of 7.7% year to date with the stock 13% below its all-time intraday high of $90.97 set on Jan. 13.
The stock is below its 50-day and 200-day simple moving averages of $80.30 and $80.79, respectively. Note that the 50-day is now below the 200-day in what technicians call a "death cross."
Note the volatile ride of 25% up from its Oct. 16 low of $72.61 to the all-time high, which was followed by a 15% decline to its May 6 low of $77.17.
Here's the weekly chart for Wal-Mart.
Courtesy of MetaStock Xenith
The weekly chart for Wal-Mart is negative but oversold, with the stock below its key weekly moving average of $80.06. Even though its momentum reading is below the oversold threshold of 20.00, it rose to 14.13 from 12.45 a week ago,
A weekly close above the key weekly moving average with momentum rising above 20.00 would be a technical positive for the stock.
Investors looking to buy Wal-Mart should place a good till canceled limit order to purchase the stock if it drops to $75.36, which is a key level on technical charts until the end of 2015.
Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $84.80, which is a key level on technical charts until the end of 2015.