Is It Time to Short Walmart?

The long-term technical picture for Walmart (WMT) is bullish, but shorter-term, the price action is signaling the possibility of a pullback. A potential countertrend move would present a good risk/reward short trading opportunity.

The weekly chart shows the 35% drop in the share price that occurred in 2015 and the rebound this year that recovered 38% of that decline. This reflexive move higher has defined a strong uptrend line, and the technical indicators on this timeframe have been moving higher along with price.

The relative strength index crossed back above its 21-period average in November of last year, followed by a bullish moving average convergence/divergence crossover, and both have tracked back above their centerlines. Chaikin money flow crossed above its centerline last month which suggests renewed buying interest in the stock.

So overall, the longer-term timeframe is in good technical shape, but there is evidence on the daily timeframe that suggests the stock may be preparing for a pause and a profitable pullback.

A cluster of high wick candles formed on the daily chart this month, as the stock has been retesting the 38% Fibonacci retracement level of the 2015 range. These candles have high upper ranges but lower opening and closing ranges, and they reflect an inability to hold higher price levels -- and in this particular case, to sustain a move above key resistance. Moving average convergence/divergence has been in bearish divergence to price for the last two months, and this is a sign of waning positive price momentum. Stochastics had been in an overbought condition but has dropped out of that zone and is trending lower, a sign of accelerating price momentum. The daily money flow readings are in opposition to those on the weekly chart. Accumulation/distribution moved below its 21-period signal line, and Chaikin money flow dropped into negative territory, both reflecting recent signs of distribution.

On the lead timeframe, the stock price and the technical indications are bearish, and a lower candle close below the $67 level would be a good risk/reward shorting opportunity, using an initial stop above the $69 level high wick high.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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