Wal-Mart (WMT) Technical Chart Analysis

Michael Kahn, CMTby Michael Kahn, CMT

Although profits were up at the world’s largest retailer, investors were disappointed with Tuesday’s announced results and also with the company’s outlook for the current quarter and for the coming year. The stock was down in Tuesday trading more than 4% in the morning hours but that was not the real technical story.

Tuesday’s decline created what chartists call a “downside breakaway gap.” In regular English, the stock cratered. Supply so overwhelmed demand that the laws of economics required prices to jump down in one fell swoop rather than smoothly ease lower.

So what does that mean for investors? Well, it’s not good.

The last time Wal-Mart traded at last week’s lofty levels was in 2008. Although initially it was able to resist the bear market that started in 2007, it finally gave way in September 2008. At that time, it also scored a dramatic negative shift on its chart. From that point, although it was able to move in 10% swings both higher and lower, it spent the next few years essentially flat.

Why talk about this sideways action? Because until late last year, Wal-Mart returned very little to investors during the market’s  rather strong bull run from 2009. And now with its technical breakdown, a return to malaise seems rather likely.

To be sure, it is a blue chip stock, a member of the Dow Jones Industrial Average and clearly a powerful presence in retail. But as a stock market investment, its better days are behind it for weeks, if not months to come.

Michael Kahn, CMT, writes the twice weekly Getting Technical column for Barron’s Online and publishes the daily Quick Takes Pro newsletter. Follow him on Facebook.


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