Wal-Mart Stores, Inc. (WMT) could post stronger gains than Amazon.com, Inc. (AMZN) in 2018 despite the investing public's unending love for the internet juggernaut. Political and technical headwinds could undermine the online retailer's rapid growth trajectory, while the Arkansas-based retail giant finally enters the fast track, building out a hugely popular online portal while making key acquisitions that offer stronger competition in major retail battlegrounds.
Amazon CEO Jeff Bezos' Washington Post has attracted the wrath of the Trump administration, with the popular publication a constant thorn in the president's side. This antagonism could grow into charges of monopolistic practices, with Congressional investigations slowing down Amazon's rapid entry into food, pharmaceuticals and self-delivery initiatives while allowing its conservative but slow-moving rival to play catch-up. (See also: How Wal-Mart Is Beating Amazon at Its Own Game.)
Amazon stock faces technical hurdles after gaining more than 40% in seven months into July's all-time high at $1,083.31. The uptrend that started in 2009 accelerated at the start of 2015, lifting the stock into a rising wedge pattern that typically generates the last buying impulse ahead of a long-term top. The rally finally reached the psychological $1,000 level in May 2017 and dropped into a two-month consolidation, followed by wedge breakout that printed the all-time high.
The stock then turned sharply lower, failing the breakout and dropping into wedge support in September. That level has held on the arithmetic chart but broken on the logarithmic chart, raising a red flag, while a bounce starting about three weeks ago has now reached strong headwinds at $1,000. The long-term stochastics oscillator has crossed into a sell cycle at the same time, predicting relative weakness into 2018, and is just now crossing through the midpoint of the indicator panel. (For more, see: Amazon – Not Apple – Will Be First $1T Co.: NYU Prof.)
On-balance volume (OBV) has also taken a hit since the stock crossed into the quadruple digits for the first time, entering a major downturn that signals profit taking by funds and retail investors looking for more favorable opportunity cost. These bearish technical elements raise the stakes heading into year end, with a decline though $920 favoring a steeper slide that could reach early 2017 support near $850.
Wal-Mart shares broke out of a 12-year trading range in 2012 and rallied to an all-time high at $90.97 in January 2015. The stock then entered a steep correction that undercut the breakout level in August, dropping to a four-year low at $56.30 in December. A 2016 recovery wave remounted the breakout level in February and paused for three months, ahead of continued upside that reached the .618 Fibonacci sell-off retracement level in May 2017. (See also: Wal-Mart Will Unpack Groceries, Restock Fridges.)
It has been consolidating gains at that harmonic level for the past four months and is now testing August range resistance at $82. A breakout will set the stage for continued upside into the .786 retracement level at $83.50, marking the final barrier ahead of a key test at the 2015 high. A rally into the $90s would then confirm the 2012 breakout, raising the odds for a more vertical price rate of change in the coming years.
OBV has ticked higher with price since the first quarter of 2016 and should reach the 2015 high at the same time. Traders should watch this key measurement in the coming months because it will reveal growing institutional sponsorship that has been lacking in the past two years. That is a key ingredient in this technical stew because institutional entry should attract retail investing interest, shaking the cobwebs off this sleepy performer and lifting it into a momentum-fueled uptrend. (For more, see: Goldman Sachs Upgrades Wal-Mart.)
The Bottom Line
Amazon shares may be topping at near $1,000 while Wal-Mart stock continues a long-term recovery following a 2015 decline. The Arkansas-based retailer could win this hare and turtle tale in 2018, lifting into the triple digits while its rival works through political and technical headwinds. (For additional reading, check out: Costco, M&A Could Be How Wal-Mart Beats Amazon.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>