Dow component Walmart Inc. (WMT) reports second quarter earnings in Thursday's pre-market, with Wall Street analysts expecting the retail mega-chain to report profits of $1.22 per share on $129.3 billion in revenues. The stock rallied 1.4% after beating earnings estimates and missing revenues in May's first quarter confessional, reporting healthy 3.4% growth in U.S. comparative sales. E-commerce sales returned to the fast track during the quarter, lifting 37% year-over year.

The stock broke out above 2018 resistance a few sessions later and posted an all-time high at $115.49 on July 16. Sellers have taken control since that time, dumping the stock through new support in a failed breakout that has landed under the 50-day exponential moving average (EMA). The announcement of new tariffs on Sept. 1 has forced shareholders to take a second look because those duties will directly affect the retail sector.

Walmart gets an estimated 70% to 80% of its goods through Chinese imports that will be tagged with tariffs that are likely to impact already razor-thin margins. Bulls hope the retailer will replace lost income with market share gains from customers departing other storefronts, but the public may react by spending less across all demographics and chains, including, Inc. (AMZN), which faces a similar challenge. 

WMT Long-Term Chart (1993 – 2019)

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

The stock rocketed higher in the '80s and early '90s while replacing the paradigm of small town shopping with suburban and edge-of-town mega-stores. The rally topped out at a split-adjusted $16.59 in 1993, marking resistance until a 1998 breakout generated a final advance into the December 1999 peak at $70.25. That marked the highest high for the next 13 years, ahead of a downtrend that found support in the low $40s in 2001.

It held those range boundaries through the rest of the decade, building secondary support in the upper $40s between 2008 and 2011. Price action finally lifted off in 2012 and reached the 1999 high a few months later. Despite the proximity, it took an additional two years to trigger a breakout that topped out in the low $90s at the start of 2015. The stock then sold off with other brick-and-mortar retailers, losing market share at a rapid pace to Amazon and other e-commerce juggernauts.

Walmart responded with the acquisition and major upgrades to its rusty online sales portal. The market finally took notice in 2017, lifting the stock back to the prior high, ahead of an uptrend that ended near $110 in January 2018 when the president fired the first round in the trade war. A decline into mid-year found support in the low $80s, while a December retest held well above that low, setting the stage for a final assault into July's all-time high.

The monthly stochastics oscillator entered a buy cycle in June 2018 and reached the overbought zone in May 2019. It crossed into a sell cycle in July, predicting relative weakness that could persist through year end. The stock failed the breakout above the 2018 high at the same time and is now vulnerable to another trip into support near $90. More ominously, price action since 2015 may have carved an Elliott five-wave rally set, with an aborted fifth wave ending the uptrend.

Despite the mixed outlook, there are few reasons for shareholders to dump the stock into earnings because consumer spending has been solid so far in 2019, and Walmart's biggest challenges will come next year unless Trump cuts a trade deal, which appears unlikely due to the upcoming presidential election. Even so, current owners and other market watchers should listen closely to the post-earnings commentary for signs that the company is worried about 2020 profits.

The Bottom Line

Walmart stock has pulled back from July's all-time high ahead of this week’s earnings report, which may offer insight on the impact of tariffs going into effect on Sept. 1.

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