Big-box retailer Walmart (WMT - Get Report) beat analysts earnings estimates, reported before the open Thursday morning. My call is to sell strength to my annual risky level of $82.79, as good news is priced into recent share-price strength.
Walmart beat on EPS and revenue; same-store sales matched expectations; online sales surged 60%. My annual risky level is $82.79. Shares slipped from around that level to $79.17 an hour into the session.
This component of the Dow Jones Industrial Average set its all-time intraday high of $90.97 during the week of Jan. 16, 2015. The stock fell to a multiyear intraday low of $56.30 during the week of Nov. 13, 2015. This bear market decline of 38.1% on its weekly chart is a good reason to analyze the Fibonacci Retracement levels.
Walmart closed Wednesday, Aug. 16 at $80.98, up 17.2% year to date and in bull market territory 24.1% above its post-election low of $65.28 set on Jan. 27. The stock set its post-election high of $81.99 set on Aug. 9, approaching my annual risky level of $82.79, where investors should reduce holdings.
The Weekly Chart for Walmart
Courtesy of MetaStock Xenith
The weekly chart for Walmart ($80.98 on Aug. 16) is positive with the stock above its five-week modified moving average (in red) at $78.69. The stock is above its 200-week simple moving average (in green) and "reversion to the mean" at $73.47, last tested during the week of July 14 when the average was $73.34.
The "reversion to the mean" is an investment theory that the price of a stock will eventually return to a longer-term simple moving average, and the 200-week is simple to track. A ticker trading above its "reversion to the mean" will eventually decline back to it on weakness. Similarly, a ticker trading below its "reversion to the mean" will eventually rebound to it on strength. This concept is clearly shown above for Walmart.
The horizontal lines are the Fibonacci Retracement levels between the January 2015 all-time high of $90.97 and the November 2015 low of $56.30. Note how the 50% retracement lines up with the 200-week simple moving average at $73.65.
The key levels to hold on weakness are the 61.8% retracement of $77.74, the 50% retracement of $73.65 and the 38.2% retracement of $69.55.
Investment strategy: Sell strength to my annual risky level of $82.79. Buy weakness to my monthly, annual, semiannual and quarterly value levels of $78.08, $77.16, $73.37 and $69.59, respectively.
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