Walmart Could Jump 15% in Coming Weeks

Dow component Walmart Inc. (WMT) surged to an all-time high at $110 in January 2018 and turned tail, dropping more than 25% in a major correction that may have ended in May. It has ticked higher into August, carving the last stage of a potential rounded bottom that could yield a healthy recovery wave in coming weeks. Shareholders will have the final say on what happens next, with Aug. 16 earnings likely to trigger a high-percentage rally or decline.

The company is well positioned to take market share from the Amazon.com, Inc. (AMZN) juggernaut in coming years. Many analysts believe that Walmart had this in mind when buying Jet.com in 2016, taking the next step in a massive build-out of its online sales capacity. That narrative lost advocates following May's first quarter report, when the company warned that online and international initiatives were squeezing margins rather than adding to profits. 

Also, it's no coincidence the stock topped out at the same time that trade tensions hit the news wires in January 2018. Walmart inventory is filled with foreign imports, potentially adding to margin pressures in both brick-and-mortar and online venues. Costly foreign growth could also face headwinds, with the American brand facing a huge marketing challenge due to Trump administration policies that are rattling long-term friendships and alliances. (See also: Walmart, Target Can Compete vs. Amazon: O'Leary.) 

The stock ended a multi-year uptrend at a split-adjusted $17.00 in 1993 and sold off, bottoming out in the single digits in January 1996. It then turned higher, entering a powerful trend advance that topped out at $70.25 during the last trading day of 1999. That peak marked the highest high for the next 12 years, ahead of a 10-month decline that found support at $41.44, the lowest low in the past 18 years.

A bounce into 2002 stalled in the upper half of the 29-point trading range, giving way to a shallow decline that ignored the mid-decade bull market. The stock tested the 2000 low for the fifth time September 2007 and turned higher once again, stalling within seven points of the 1999 peak in September 2008. It sold off with world markets during the October crash but held up relatively well, setting the stage for a 2011 uptrend that broke multi-decade resistance in 2014.

That breakout failed in 2015, with retailers in full retreat due to the millennial exodus into online sales. The decline bottomed out in the mid-$50s a few months later, generating a more durable uptick that reinstated the breakout in 2017, ahead of a vertical surge into triple digits in January 2018. The subsequent downturn found support on top of the 2013 high (red line), while the most recent uptick has lifted the stock above the 50-week exponential moving average (EMA) for the first time since March. (For more, see: Amazon Rivalry at Core of Partnership With Walmart: Microsoft CEO.)

A Fibonacci grid stretched across the 2018 correction identifies hidden levels that may come into play in coming weeks. The current uptick is still two points below the .382 retracement level, which could be reached prior to next week's earnings report. The Feb. 20 gap has established major resistance at the .618 retracement level, which is narrowly aligned with $100. That price zone looks like a magnetic target if buyers take control following the quarterly confessional. It's also the level at which market players should take aggressive profits if buying a base breakout.

On-balance volume (OBV) entered an accumulation phase in the fourth quarter of 2015, stalling at the 2008 high (blue line) in January 2018. It isn't surprising that the indicator failed to break out due to an aggressive buyback program that has reduced the public float. OBV turned higher in June but shows no upside acceleration that is typical with committed buying interest. As a result, it's best to view this price structure as a trading opportunity rather than an investment option. (To learn more, check out: On-Balance Volume: The Way to Smart Money.)

Walmart shares may have completed a rounded bottom that will generate a healthy bounce into resistance at $100, where sellers could reload short positions. (For additional reading, check out: Walmart to Enter Video Streaming Space: WSJ.)

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