WMT has pulled back to a historically bullish trendline
Late last month, Schaeffer’s Senior Quantitative Analyst Rocky White took a dive into what happens the week after Black Friday, and if that reaction can tell us about the market going forward. On the list of 25 S&P 500 Index (SPX) stocks he pulled from the "General Retailers" sector, names at the top of the list had been the most bullish the week after Black Friday, while those at the bottom have been the most bearish. For perspective, WMT has seen an impressive climb up the charts, now up 23% year-to-date. The equity also hit a record high of $153.40 on Nov. 16.
Taking its place right in the middle of the chaos was blue-chip and retail powerhouse Walmart (WMT), one of the names most synonymous with the Black Friday frenzy. This chart indicated the equity tended to be positive 60% of the time the week after Black Friday. However, this slightly bullish leaning outlook didn’t quite come into fruition, as WMT subsequently suffered five-straight daily losses. All is not lost, however, as this week, a longer-term trendline has solidified itself as support, and if history tells us anything, it could springboard the equity back to within a stone’s throw from fresh record highs.
Digging deeper, Walmart stock is within one standard deviation of its 50-day moving average. According to Schaeffer's Senior Quantitative Analyst Chris Prybal, WMT has tested support at this trendline a notable nine other times over the past three years. The stock was higher a month later 78% of the time, and averaged a 2.7% gain for that time period. A move of similar magnitude from WMT's current perch would put the equity just shy of $151 -- a chip-shot within a new record high.
Another indicator suggesting Walmart stock is ripe for -- at the very least -- a short-term bounce, is the equity’s 14-day Relative Strength Index (RSI) of 24. In simpler terms, this low ranking sits comfortably in "oversold" territory, meaning the stock’s recent trend lower may be short-lived.
This all said, regardless of whether you err on the side of a bullish or bearish outlook on the retail chain, options are looking attractively priced. This is per the blue chip’s Schaeffer's Volatility Index (SVI) of 22%, which sits in the 14th percentile of all other annual readings. In other words, options traders are pricing in relatively low volatility expectations at the moment -- a boon for premium buyers.
Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, December 13.