Dissecting The Wal-Mart Breakout

10/24/06 08:51:45 AM

by Arthur Hill

Wal-Mart broke double-bottom resistance on the weekly chart, and the stock looks as if it is headed for a familiar resistance zone.

Security: WMT
Position: Accumulate

On the weekly chart (Figure 1), Wal-Mart (WMT) broke resistance at 51 with a surge over the last two weeks. Note that the last bar is only one day old and this bar could change over the next four days. The stock established support at 51 in 2004, and this level turned into resistance in 2005. WMT failed around 50–51 at least five times since June 2005, and this week's breakout forged a 52-week high. The move also broke the trendline extending down from March 2004.

FIGURE 1: WAL-MART, WEEKLY. The stock broke resistance at 51 with a surge over the last two weeks.

Graphic provided by: TC2000.com.

Graphic provided by: Telechart 2007.

The pattern over the last 15 months looks like a large double bottom. The September 2005 low and July 2006 low formed the two bottoms (gray circles). There are two reaction highs in between at 51 and 50 (blue circles). WMT cleared them both with the surge above 51 and the double-bottom target is around 60 (51 - 42.5 = 8.5, 51 + 8.5 = 59.5). The length of the pattern is added to the breakout for a target.

FIGURE 2: WAL-MART, MONTHLY. WMT has been stuck in a range since 1999—more than six years!

Graphic provided by: TC2000.com.

Graphic provided by: Telechart 2007.

Turning to the monthly chart for some perspective (Figure 2), we can see that Wal-Mart has been stuck in a range since 1999 (more than six years). The 1999 high is at 70.25 and the 2000 low is at 41.43. The middle of this range resides around 56 and the stock is not near this level yet. The stock met resistance between 56 and 65 from January 2000 to November 2004 (red box). This resistance level remains in 2006, and the stock is likely to be turned back again. There is also resistance around 56 from the December 1999 trendline. While there is further room to run, look for resistance to start in the mid-50s.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Dissecting The Wal-Mart Breakout

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