Dow component Walmart Inc. (WMT) has held up remarkably well in the past few weeks, shaking off stiff headwinds generated by growing trade tensions with China and Mexico. The retail giant's fate is closely levered to both nations through massive inventory purchases, and the stock should sell off because Walmart will be forced to raise prices or lower margins, barring last minute trade deals.
However, it looks like investors have chosen to focus on the company's recession-proof reputation for now, expecting market share to grow after tariff-weary consumers are forced to walk away from more expensive retail outlets. (See also: Mall Anchor Stocks Headed for New Lows.) That's what happened in 2008 and 2009, when Walmart stock dropped less than 30% despite the economic collapse.
It could be different this time around because Walmart maintained margins and profitability during last decade's bear market thanks to China's rapid industrialization, which encouraged American companies to open or license inexpensive manufacturing facilities to lower operating costs. The opposite scenario is in play during this crisis, with international supply chains breaking in a populist wave that cares little about corporate profits.
WMT Long-Term Chart (1993 – 2019)
A historic uptrend stalled at a split-adjusted $17.00 in 1993, giving way to a rounded correction that found support in the single digits in 1996. The subsequent uptick reached the prior high one year later, triggering a breakout that attracted strong momentum buying interest. The stock more than tripled in price in the next two years, finally topping out at $70.13 in 1999. That marked the highest high for the next 12 years, ahead of range-bound action with support in the low $40s.
The shares posted a six-year high in the mid-$60s in September 2008 and turned tail with world markets, dropping to a 52-week low at $46.25 in February 2009. Support tests in 2010 and 2011 completed a triple bottom reversal, yielding a strong uptrend that completed a round trip into the 1999 high in 2012. The stock broke out immediately and stalled in the upper $70s a few months later, marking resistance ahead of a 2017 breakout that posted an all-time high at $109.98 in January 2018.
Price action in the past 17 months has carved a broad symmetrical triangle that is now engaged in a fourth wave rally. These patterns typical carve five waves before breaking out or breaking down, indicating that Walmart will remain range bound into the foreseeable future. Meanwhile, the monthly stochastic oscillator entered a buy cycle in July 2018 and has just crossed into the overbought zone, favoring additional upside.
WMT Short-Term Chart (2015 – 2019)
A Fibonacci grid stretched across the 2015 into 2018 uptrend places the December 2018 low at the 50% retracement level. The stock hit deeply oversold technical readings at that time, supporting the 2019 uptick, which is still in progress. The rally has now reached intermediate resistance at the November 2018 peak and may have broken out above the trendline of lower highs. If so, the upside should escalate rapidly into a test at the 2018 high.
The on-balance volume (OBV) accumulation-distribution indicator ended a strong accumulation phase in June 2018 and entered a distribution phase that may have ended in December. OBV stalled in April 2019 and has been grinding ways for the past six weeks, marking a balance between buyers and sellers. It will take a big catalyst to break this stalemate, with bullish news potentially lifting the price into the 2018 high, while bearish news would dump the stock back to the 2018 low.
The Bottom Line
Walmart stock is holding up well despite trade headwinds, but underlying technicals reveal a balance between bulls and bears rather than a resurgence in buying interest.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.