Retail giant Walmart Inc. (WMT) announced that it beat earnings estimates in its quarterly report released before the opening bell on Aug. 18. The stock gapped higher at the open that day to an all-time intraday high of $137.63, but Walmart then failed to hold its quarterly pivot at $133.41 on Aug. 19.
The stock closed Monday, Aug. 24, at $131.33, up 10.5% year to date and in bull market territory at 28.8% above its March 16 low of $102.00. Walmart stock is also 4.6% below its all-time intraday high of $137.63 set on Aug. 18.
The daily chart for Walmart
The daily chart for Walmart shows that the stock has seen a false death cross on March 24 and a golden cross on April 15. This buy signal occurred when the 50-day simple moving average (SMA) rose above the 200-day SMA.
After the stock rallied to $133.38 on April 20, it declined to its 200-day SMA on June 12. This average held through July 7, which helped the stock gain upward momentum. The semiannual pivot at $125.03 was tested on July 7. Holding this level targeted its quarterly pivot at $133.41, which was tested on July 13.
After trading as high as $137.63 on Aug. 18 (an all-time high), Walmart stock failed to hold its quarterly pivot at $133.41 on Aug. 19. The stock is between its semiannual pivot at $125.03 and its quarterly pivot at $133.41, with its 50-day and 200-day SMAs at $127.78 and $121.52.
The weekly chart for Walmart
The weekly chart for Walmart is positive, with the stock above its five-week modified moving average at $129.22. The stock is well above its 200-week SMA, or reversion to the mean, at $97.24, last tested during the week of July 14, 2017, when the average was $73.34.
The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 75.24 this week, up from 75.09 on Aug. 21. The upward momentum of this indicator is flattening, which is a warning.
Trading strategy: Buy Walmart stock on weakness to its semiannual, monthly, and annual value levels at $125.03, $120.65, and $116.42, respectively. Reduce holdings on strength to its quarterly pivot at $133.41.
How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each level uses the last nine closes in these time horizons.
The third quarter 2020 level was established based upon the June 30 close, and the monthly level for August was established based upon the July 31 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by a gain of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.