Walmart Reports Earnings in Recovery Mode

Retail giant Walmart Inc. (WMT) is a component of the Dow Jones Industrial Average. The stock began 2018 with strong momentum and set its all-time intraday high of $109.98 on Jan. 29. At the high, the stock had a 12 x 3 x 3 weekly slow stochastic reading above 90.00, making the stock an "inflating parabolic bubble." When the retailer reported disappointing earnings on Feb. 20, the stock could not hold its annual pivot of $96.42, which set the stage for a rough 2018 for Walmart.

Walmart stock closed Monday, Aug. 13, at $89.64, down 9.2% year to date and deep in correction territory at 18.5% below its Jan. 29 all-time high. The stock has been in recovery mode and is up 9.6% since May 24 after setting its 2018 low of  $81.78. By comparison, the Dow 30 closed Monday at 25,187.70, up 1.9% year to date and down 5.4% from its Jan. 26 high of 26,616.71. The Dow is 7.9% above its April 2 low of 23,334.52.

Analysts expected Walmart to post earnings per share between $1.21 and $1.23 when the company reports results before the opening bell on Thursday, Aug. 16. Most think that Walmart is poised for gains from its e-commerce activities, including online grocery deliveries. Efforts to boost in-store sales should drive improvement in same-store sales figures. A drag could be the retailer's strained margins. (See also: Walmart Could Jump 15% in Coming Weeks.)

The daily chart for Walmart

The daily chart for Walmart shows how the stock gapped below my annual pivot of $96.42 on Feb. 20 on a negative reaction to earnings. The stock continued under downward pressure that resulted in the formation of a "death cross" on April 26. A "death cross" occurs when the 50-day simple moving average declines below 200-day simple moving average and indicates that lower prices lie ahead. After setting its 2018 low of $81.78 on May 24, the stock is above my semiannual, monthly and quarterly pivots of $81.81, $84.87 and $88.35, respectively. On Monday, the stock stayed below its 200-day simple moving average of $91.23.

The weekly chart for Walmart

The weekly chart for Walmart is positive but overbought, with the stock above its five-week modified moving average of $88.07. The stock is also above its 200-week simple moving average, or "reversion to the mean," now at $76.84, which was 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 end this week at 80.93, moving above the overbought threshold of 80.00.

Given these charts and analysis, my trading strategy is to buy Walmart shares on weakness to my monthly and semiannual value levels of $84.87 and $81.81, respectively, and to reduce holdings on strength to my annual risky level of $96.42. My quarterly pivot is $88.35. (For more, see: Walmart to Enter Video Streaming Space: WSJ.)