Big-box retailer Wal-Mart Stores, Inc. (WMT​) reports earnings before the opening bell on Thursday. The stock has been one of the better performers of the Dow Jones Industrial Average (DJIA).

The DJIA is up 18.5% year to date and set its all-time intraday high of 23,602.12 on Nov. 7. Meanwhile, Wal-Mart stock is up 31.8% year to date and is in bull market territory at 39.5% above its post-election low of $65.28 set on Jan. 17. The stock set its all-time intraday high of $91.98 on Nov. 13. (See also: How Wal-Mart Is Beating Amazon at Its Own Game.)

Analysts expect Wal-Mart to post earnings per share between 97 cents and 99 cents on revenue of $121.06 billion. Earnings per share should show a small year-over-year decline, while revenue should be slightly higher. Key guidance includes projected online sales and how the company will bring holiday spirit into its stores. Some say that the company's e-commerce share will rise by 60%. The question is how much positivity is priced into the huge stock rally this year. Here's where the charts come in!

Wal-Mart stock saw a "golden cross" on April 21 when it closed at $74.94. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average, indicating that higher prices lie ahead. This signal helped investors capture a significant portion of this year's gain.

The weekly chart for Walmart

Weekly technical chart for Wal-Mart Stores, Inc. (WMT) stockCourtesy of MetaStock Xenith

The weekly chart for Wal-Mart is positive but extremely overbought, with the stock above its five-week modified moving average of $86.79. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 91.18 this week, up from 88.97 on Nov. 10. This reading is not only above the overbought threshold of 80.00 but also above 90.00, which is my definition of an "inflating parabolic bubble."

The stock is well above its 200-week simple moving average of $73.80. I consider this moving average as the "reversion to the mean." This 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. Notice how many times the 200-week simple moving average was a magnet between the week of June 19, 2015, and the week of July 14, 2017.

Given this chart and analysis, my trading strategy is to buy weakness to my quarterly, annual and semiannual value levels of $79.18, $77.16 and $74.70, respectively, and to reduce holdings with the stock above this week's pivot of $90.82. (For more, see: Wal-Mart to See Best Year in 3 Decades: Susquehanna.)

 

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