Dow Jones Industrial Average component Walgreens Boots Alliance, Inc. (WBA) has been dead weight in the venerable index since replacing General Electric Company (GE) in June 2018, with shares of the pharmacy giant slumping to a six-year low earlier this month. However, the bearish tide may be turning with a double bottom reversal that signals the end of the nine-month downtrend. If so, bottom fishers and value players could be rewarded handsomely for their efforts in the coming months.
Dow stocks tend to trade in a closed-end system, in which capital rotates constantly out of overbought leaders and into oversold laggards. Index funds are to blame for this phenomenon, which can generate phenomenal returns for experienced market timers. Even so, patience will be needed with this rotational play because the stock is still trading below the 200-day exponential moving average (EMA), which was broken on heavy volume in December 2018.
WBA Long-Term Chart (1987 – 2019)
The stock entered a powerful uptrend after hitting a multi-year low during the 1987 crash, splitting four times during an ascent that topped out in the mid-$40s in the fourth quarter of 2000. That marked the highest high for the next five years, ahead of a bear market decline that found support at a three-year low in the mid-$30s in 2003. The subsequent bounce completed a round trip into the prior high two years later, yielding an immediate breakout.
The nascent uptrend attracted little buying interest, stalling just four points above the 2000 high a few months later and easing into a narrow sideways pattern that yielded a failed breakout in September 2007. The stock fell to a 10-year low during the 2008 economic collapse and turned higher in 2009, carving a two-legged recovery wave that ended at the .786 Fibonacci sell-off retracement level in 2011.
Positive price action completed a 100% retracement into the 2006 high in 2013, while the subsequent breakout posted impressive gains into 2015's all-time high at $97.30. A sell-off into 2016 found support in the low $70s, establishing a trading range that broke to the downside in the fourth quarter of 2017. The stock has carved two lower lows since that time, posting a six-year low near the 2016 high in the $40s just three weeks ago.
The monthly stochastics oscillator crossed into a sell cycle from the overbought level in December 2018 and posted the most extreme oversold technical reading since the 1970s in May 2019. July's bullish crossover has put buyers in charge for now, while price action in the past four months has drawn the outline of a double bottom reversal. Taken together, it looks like the persistent decline is finally coming to an end.
WBA Short-Term Chart (2016 – 2019)
A Fibonacci grid stretched across the nine-month downtrend highlights intense resistance up to the .382 retracement level, marked by April 2019's seven-point gap between $63 and $56. The stock mounted the July swing high at $57 last week and entered the gap, reversing within a few ticks of the 200-day EMA. It's trading under the two-month peak on Monday, reinforcing range resistance centered near $56.50.
The on-balance volume (OBV) accumulation-distribution indicator hit a multi-year high in November 2018 and rolled into a distribution phase, carving a rounded pattern that looks far more constructive than price action. The 3.27% forward dividend yield has apparently kept shareholders in the game, hoping for better days. That beneficial period could be dead ahead, with OBV now sitting at the same level as February, when the stock was trading 20 points higher.
An orderly decline into the 50-day EMA in the coming weeks could offer a low-risk buying opportunity for investors willing to hold positions for a minimum of one or two years. On the flip side, all bets should be taken off the table if the decline reaches mid-summer support because most triple bottoms fail in nasty breakdowns. However, that doesn't seem likely, given strong technical tailwinds into the fourth quarter.
The Bottom Line
Walgreens Boots Alliance stock may have bottomed out after a steep downtrend and could reward value players in coming months.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.