Dow component Walmart Inc. (WMT) posted an all-time high in Friday's session, highlighting continued strength despite escalating tariffs and growing predictions for an economic slowdown. The company has fired on all cylinders in recent quarters, building profits and expanding margins, so the higher stock prices make perfect sense. However, the majority of 2019 strength has come from a renewed exodus out of brick-and-mortar retailers, raising doubts about the longevity of the rock-solid metrics.

Market players have a fresh opportunity to debate the commerce giant's prospects this week, with third quarter earnings scheduled for Thursday's pre-market. Analysts will be looking for profits of $1.09 per share on $127.9 billion in revenues at that time while expecting bullish guidance on 2020 comparative sales and margins. A miss on these numbers could easily trigger a downturn, especially with growing pessimism about a China trade deal.

The stock rocketed higher after Walmart beat profit estimates and raised guidance in August, entering a solid uptrend that mounted July resistance at $115 a few weeks later. The rally eased into a trading range in October, with a confirmed range breakout after earnings opening the door to $135 to $140. However, downside risk looks greater than upside potential right now, with a poorly received report raising the odds for a sell-off that fills the July gap between $108 and $110.

Wall Street has grown more skeptical about the company's future this quarter, with a few boutique upgrades in August and Nomura's October "buy" rating the only notable actions. Hesitancy from analysts isn't unusual because the stock is fully valued after posting returns in excess of 25% so far in 2019. Look for a trade deal to force a bullish reset of these numbers, while a continued impasse could trigger a flurry of downgrades, especially if this week's report fails to deliver upside guidance.

WMT Long-Term Chart (2000 – 2019)

Long-term chart showing the share price performance of Walmart Inc. (WMT) 

A multi-year uptrend topped out just above $70 in the last quarter of 1999, marking a high that wasn't challenged for the next 12 years. It sold off into the lower $40s at the end of 2000 and tested that level successfully twice into 2003, but the subsequent uptick failed to attract buying interest. The rally ended just above $60 in 2004, giving way to a dead tape that bounced along range support into the fourth quarter of 2007.

Walmart stock turned sharply higher at the same time the mid-decade bull market came to an end in a contrary uptick, underpinned by growing fears of an economic meltdown. Even so, the rally failed to mount swing highs posted between 2000 and 2003, continuing the multi-year trading range into 2011, when a steady advance set into motion. It reached 1999 resistance a year later and dropped into a narrow consolidation pattern that finally yielded a breakout in 2014.

The rally failed in 2015 after retail reports highlighted an exodus out of brick-and-mortar storefronts into e-commerce sites that included, Inc (AMZN). Walmart responded with the timely acquisition of as well as an expensive roll-out of a sophisticated e-commerce portal. Those initiatives bore fruit in 2017, triggering a historic breakout and uptrend that posted an all-time high at $120.92 in Friday's session.

The monthly stochastics oscillator entered a buy cycle in June 2018 and has now reached an extremely overbought level that has triggered multiple downturns since 2008. At the same time, the stock has carved a rising wedge pattern often seen in the final stages of an uptrend. The rally into the fourth quarter has just reached wedge resistance, with both technical elements raising the odds for a downturn that tests the psychological $100 level in the coming months.

The Bottom Line

Bulls and bears are evenly matched heading into this week's third quarter earnings report, but over-extended technicals raise the odds for an intermediate correction for Walmart stock lasting into 2020.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.