Dow component Walmart Inc. (WMT) rallied to an all-time high above $128 on Wednesday, underpinned by shelter-at-home directives that are likely to trigger a wave of retail sector bankruptcies. The loss of brick-and-mortar rivals should put the big box giant in the driver's seat, increasing market share at the same time that wealth destruction forces many families to seek out cheaper shopping alternatives.

The rush to stock up on consumer staples has underpinned Walmart's uptick as well, with lines forming around its stores, as well as Target Corporation (TGT) and Costco Wholesale Corporation (COST). However, this positive catalyst should be temporary, with affected supermarkets and retailers working furiously to broaden supply chains. Even so, no one can rule out shortages that may generate panic buying events during the crisis.

Long-time market players watched the same playbook unfold in September 2008, just a few weeks before the October crash. Walmart shares zoomed to a six-year high at that time as investors watched the power of wealth destruction and realized that their shopping habits were undergoing a paradigm shift. However, illiquidity took control over buying interest just one month later, dumping the stock more than 25%. If past is prologue, new shareholders may wish to keep one finger on the exit button at all times. 

WMT Long-Term Chart (1995 – 2020)

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

The stock took off for the stars in 1997, entering a nearly vertical uptrend underpinned by the death of Main Street in favor of big box retailers at the edge of town. It rallied nearly 60 points into the December 1999 high at $70.25, marking the highest high for the next 12 years, and turned sharply lower when the internet bubble burst in 2000. Range support in the mid-$40s was tested twice that year and once again following the Sept. 11 attacks in 2001.

Price action ran in place during the mid-decade bull market, stuck in a narrow range between $41 and $64. It fell to support once again in 2005, yielding successful 2006 and 2007 tests, just ahead of the 2008 buying spike. That impulse stalled nine cents under the 2002 high, giving way to modest decline during the economic collapse. The subsequent uptick completed a round trip into the 1999 high in 2013, yielding a breakout that booked modest gains into the first quarter of 2015.  

The rise of e-commerce ended the rally at that time, with Amazon.com, Inc. (AMZN) taking significant market share from brick-and-mortar retailers. Walmart responded with the Jet.com acquisition and a total rebuild of its online portal, setting the stage for a 2018 breakout that stalled near $110 when the trade war began. The stock built a rounded basing pattern into July 2019 and broke out once again, posting an all-time high at $128.08 in Wednesday's session.

WMT Short-Term Outlook

However, there are technical reasons to remain cautious about this week's breakout. First, the monthly stochastic oscillator entered a long-term sell cycle in December 2019, predicting at least six to nine months of relative weakness, and it was expanding to lower ground until the recent buying spike. The subsequent upturn still hasn't crossed into a buy cycle, raising the odds that sellers will return in force in the coming weeks.

Second, the on-balance volume (OBV) accumulation-distribution indicator on the daily chart topped out in February 2018 and failed three breakout attempts through February 2020. Selling pressure into March dropped OBV to a seven-month low, while the recent uptick has failed to reach resistance. This establishes a bearish divergence, warning that buying power has been insufficient to support sustained upside. 

The Bottom Line

Walmart stock has zoomed to an all-time high during the pandemic, with investors betting that the demise of less liquid brick-and-mortar retailers will underpin market share.

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