Wal-Mart Fails At Resistance (Again)

07/12/07 12:49:55 PM

by Arthur Hill

Wal-Mart surged to resistance in early June but failed to exceed resistance, and a recent flag break is short-term bearish.

Security: WMT
Position: Sell

Wal-Mart (WMT) is part of the retail industry group, the consumer discretionary sector, the Dow Jones industrials, and the Standard & Poor's 500. As such, it is an important component in a number of key indexes and exchange traded funds (ETFs). It is one of the largest stocks by market capitalization and by far the largest retailer in the US.

FIGURE 1: WMT, WEEKLY. The stock broke support at 51 in April 2005, and broken support turned into resistance.

Graphic provided by: Telechart 2007.

On the weekly chart (Figure 1), the stock broke support at 51 in April 2005, and broken support turned into resistance. WMT surged back above 50 at least six times in the last two and a half years, and each surge failed to break above resistance again. It is safe to say that 51 represents long-term resistance, and a break above this level is needed to turn long-term bullish.

On the daily chart (Figure 2), we can focus on the most recent surge and failure. The stock surged above 50 with a big move on high volume in early June. This move certainly looked strong, but the stock peaked on June 4 and declined the rest of the month. WMT found support around 48 toward the end of the month and formed a rising flag the last few weeks. The stock broke flag support on July 10 (intraday), and this signals a continuation lower. The first downside target is support around 45 and the second downside target is the support zone around 42-43.

FIGURE 2: WMT, DAILY. The stock surged above 50 with a big move on high volume in early June.

Graphic provided by: Telechart 2007.

The accumulation-distribution line already moved to a new low, and this reflects increased selling pressure. Despite the high-volume surge in early June, the accumulation-distribution line failed to break above its April high and formed a lower high. In addition, the selling pressure over the last few weeks carried the indicator below its May low, reflecting steady selling pressure. If price follows volume, then a move below the May low looks likely.

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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Wal-Mart Fails At Resistance (Again)

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