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Wal-Mart (NYSE: WMT) appeared on my daily bearish scan on Monday. The stock has appeared on that scan quite often over the last year.
Wal-Mart shares have been in a downward trend since early this year and lost almost 37% from their high in January to the low earlier this month.
When a stock appears on my bearish scan, the first thing I do is go to the daily chart to look for any kind of pattern that keeps repeating and can be used for a profitable trade. Normally for articles like this one I draw trend lines or circle any pattern I want readers to notice. With the daily chart for Wal-Mart, I didn’t really need to draw anything as the 50-day moving average pretty much took care of that.
The stochastic readings just made a bearish crossover, and that has been a pretty good bearish indicator over the past year. Even though the 10-day RSI didn’t make it to overbought territory in the recent rally, that isn’t a concern, as the RSI hasn’t made it to overbought territory since January.
After looking at the daily chart, I turned to the weekly chart to look for any patterns there. Once again, I didn’t really need to draw anything.
The 13-week moving average looks like the prevailing trend line that is keeping Wal-Mart in check on any rise. Since the stock fell below the moving average in February, it has rallied up to it on four occasions and has been turned back each time.
The only line I drew on the weekly chart is down in the 10-week RSI segment of the chart. If you look at the 40 level for the RSI, it was a pivot point for the stock during 2013 and 2014, as the stock trended sideways and finally moved higher in late 2014. Now that same area seems to be a pivot point as the stock moves lower, since the indicator hasn’t been able to move above the 40 mark since falling below it in May.
I finally looked at the monthly chart for Wal-Mart and finally found a chart I could draw some lines on. I found some possible signs that the stock could be a buy at this point.
First, the trend line connecting the lows from the last 10 years is just below at the $55 level. Secondly, the monthly oscillators are both in oversold territory, which is the first time in 20 years where both indicators have been in oversold territory at the same time.
A couple of other things to consider about Wal-Mart shares are the dividend and the sentiment toward the stock. At this point, the stock has fallen so much that the dividend yield is a respectable 3.26%.
As far as the sentiment, analysts are extremely bearish, with four “buy” ratings, 23 “hold” ratings and two “sell” ratings. It is extremely rare to see so many “hold” and “sell” ratings on a household name like Wal-Mart. This makes it more probable that the stock will receive upgrades rather than downgrades, and this could spur a rally.
The bottom line is this: The daily and weekly charts still suggest that the stock will fall in the near term, but the monthly chart suggests that the fall could be over and it is ready to reverse course. If you are a long-term investor looking for a stock with a decent yield to hold for a number of years, I think Wal-Mart makes sense at this time.
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