Dow component Walmart Inc. (WMT) gained more than 4% in Tuesday's pre-market after the retailer exceeded fourth quarter earnings expectations and reported in-line revenues. The company also reaffirmed fiscal year 2020 guidance, relieving shareholder anxiety driven by concerns about China talks and a retail slowdown during the 2018 holiday season. The rally reversed at a year-long trendline near $105 ahead of the opening bell.
The retail giant struggled throughout 2018, held down by trade tensions because its shelves are stuffed with an assortment of Chinese goods that will incur tariffs of up to 25% if the U.S. doesn't cut a deal with the Asian nation. Unlike many upscale retailers, Walmart's razor-thin margins make it difficult or impossible to pass those costs on to customers, raising the potential for shrinking profits and revenues.
WMT Long-Term Chart (1993 – 2019)
A multi-year uptrend stalled at a split-adjusted $17.00 in January 1993, giving way to a sequence of lower lows that found support near $10.00 nearly three years later. Narrow sideways action finally ended in 1997, when the stock took off in a powerful advance that lifted more than 700% into the December 1999 top at $70.19, marking the highest high for the next 12 years. The subsequent downturn ended in the low $40s just 10 months later, marking the lowest low for the past 18 years.
The stock underperformed broad benchmarks during the mid-decade bull market but held just above the 2001 low during 2005, 2006 and 2007 tests, carving a triple bottom, followed by a rally impulse that stalled near 2002 resistance in the $60s in September 2008. The October crash triggered a modest decline into the $50s, yielding three years of testing at that level, followed by a steady uptick that finally mounted the prior century's high in 2012.
Sideways action on top of new support yielded a 2014 breakout that failed just six months later, dumping the stock to a four-year low in the mid-$50s. It turned higher in November 2015, finally entering a sustained uptrend that posted an all-time high at $110 in January 2018. Trade tensions then took control, generating a volatile holding pattern that has kept the retail giant's shares glued to the $100 level for the past 12 months. The monthly stochastics oscillator crossed into a sell cycle in November 2018, predicting that mixed action will last at least until the second quarter.
WMT Short-Term Chart (2016 – 2019)
A Fibonacci grid stretched across the uptrend between 2016 and 2018 places the May 2018 low at the 50% retracement, a common turning point, while the December sell-off found support after it crossed the .382 retracement level. Meanwhile, the lower high and higher low printed in the second half of 2018 now connect swings within a potential symmetrical triangle, predicting that consolidative action will continue for several more months.
The on-balance volume (OBV) accumulation-distribution indicator mounted the 2015 high at the start of 2018 and then turned lower in a distribution phase that has posted lower highs and lower lows for the past year. However, it is holding near the midpoint of the multi-year range, close enough to the prior high to make up the deficit in a relatively short time frame. This tells market players that a single catalyst could break the stalemate and lift the stock to a new high.
Bulls need to watch price action at the upper trendline near $105, where the stock was trading this morning, while bears maintain a vigil at the lower trendline rising from $87. There's little to be gained from taking long or short positioning until one side capitulates and a trendline breaks, because that event could generate strong directional momentum. Bulls have the upper hand right now, but that could change if China trade talks fail to produce substantial results.
The Bottom Line
Walmart stock is trading sharply higher after the retail giant reported solid fourth quarter results and a healthy full-year outlook.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.