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Wal-Mart Stores (NYSE: WMT) appeared on my daily bullish scan last evening. After looking at several different charts and different indicators, I am convinced the bullish outlook is a good one.
The first element that jumped out at me was on the daily chart. We see that the stock is hovering in the $82.50 to $83 range, which is in the vicinity of the low the stock hit in December. We also see that the stock is oversold based on the daily slow stochastic readings.
After looking at the daily chart, I switched over to a weekly chart and found even more evidence to support a bullish argument for the world’s largest retailer. In addition to the layer of support the stock is finding presently, there is another layer of support down in the $79-$80 range. That layer of support stems from the area serving as resistance in late 2013 and two more times in 2014, until the stock finally broke above the resistance on a gap higher that occurred thanks to an earnings beat.
After the gap higher, the stock continued to climb and made it up to $90 before slumping in 2015. The recent pullback has caused the weekly slow stochastic readings to move into oversold territory.
Looking at the last couple of years, we can see that when the weekly slow stochastic readings hit oversold territory and then made a bullish crossover, the stock has performed well for the ensuing few months. In the three previous instances where the slow stochastic readings made a bullish crossover after reaching oversold territory, the stock has rallied at least 10% all three times.
In addition to the technical picture, Wal-Mart has its fair share of doubters at this time. The sentiment composite reading is currently at 13.99. That is one of the highest sentiment readings (bearish) of any of the Dow components.
The greatest amount of bearish sentiment is coming from the analyst ratings, as there are nine “buy” ratings, 18 “hold” ratings and five “sell” ratings on the stock. With AT&T (NYSE: T) being replaced by Apple (NASDAQ: AAPL) in the Dow Jones Industrial Average, Wal-Mart will take over the title as the most disliked stock in the index.
Between the technical picture and the sentiment toward Wal-Mart, I am bullish on the stock. The company is solid fundamentally, the stock is oversold on the weekly chart and other investors seem to be shying away from it.
As a contrarian, that is the perfect setup. I would look to buy Wal-Mart shares in the $80 to $83 range, with a minimum target of gaining at least 10% in the next three to four months. On the downside, I would set a stop-loss at the $78 level. This gives you a little room below the support level and still keeps the loss at the 5% to 6% range.
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