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SYMMETRICAL TRIANGLE


Walmart: Guaranteed Lower Prices?

07/01/05 04:19:08 PM
by Gary Grosschadl

Since peaking in 2000, Walmart share prices have drifted sideways, but a pattern break has recently occurred.

Security:   WMT (NYSE)
Position:   Sell

This weekly chart shows a large symmetrical triangle that has broken to the downside and now may be testing that breakout point. These triangles are often considered to have a neutral bias until they break in either direction. They can also be considered continuation patterns, eventually moving in the direction of the previous trend. If this is to be a continuation pattern, since the previous trend was up, another upleg can be expected. However, the downside break hints otherwise.

Normally, when a pattern breaks, there should be a confirming surge in volume. In this case, there was a big volume spike, but it actually occurred two weeks before the breakdown, almost as if smart money anticipated the downside move. After a pattern break, there can be a retest of the breakdown point and this may be the case now. Should this test fail, expect another surge in volume as more traders anticipate further downside.

Long-term weekly chart of Walmart showing a pattern break.
Graphic provided by: StockCharts.com.
 
Several indicators also reflect bearish concerns, as can be seen in this chart. Note the crossover of the 50- and 200-day exponential moving averages (EMAs). This type of cross from these prominent moving averages often signals a more serious downleg developing. In addition, the MACD (moving average convergence/divergence) and the RSI (relative strength indicator) both show weakness under key levels. Furthermore, the CMF (Chaiken money flow indicator) clearly shows a shift to bearish power.

Two downside targets are suggested: first, a previous congestion area in the $30 vicinity, and second, the pattern-fulfillment target by measurement of the widest part of the triangle as applied to below the breakdown point--leading to $20. A move back inside the triangle negates this bearish outlook and could lead to a test of the upper trendline.




Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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