Wal-Mart Firms At Support

10/23/08 08:49:39 AM

by Arthur Hill

After a sharp decline to support, Wal-Mart formed a triangle consolidation, and traders should watch these boundaries for the next signal.

Security: WMT
Position: Hold

Figure 1 shows Wal-Mart (WMT) with weekly candlesticks over the last two years. The stock broke resistance earlier this year and surged above 60. WMT held up better than the market (SPY) in September but succumbed to selling pressure in October with a sharp decline. This decline carried WMT back to support in a hurry.

FIGURE 1: WAL-MART, WEEKLY. This stock broke resistance earlier this year and surged above 60.

Graphic provided by: TeleChart2007.

Broken resistance and the 62% retracement marked support around 48–50. Securities often return to their breakouts after a runup and the 2007 highs now mark it as support. It is also common for securities to retrace 50–62% of the prior advance in a correction. An overshoot of this support zone would suggest that this decline was more than a mere correction. Also of note, WMT formed a long white candlestick two weeks ago to further reinforce support in this area.

With support around 48–50, I am turning to the daily chart for clues on a potential bounce (Figure 2). The stock broke support around 55 with a sharp decline and then formed a triangle consolidation. This pattern shows a tightening consolidation and I am watching the boundaries for a break. A move back above 55 would be bullish, while a move below 50 would be bearish. This would signal a continuation of the October decline and project further weakness toward the 2007 lows.

FIGURE 2: WAL-MART, DAILY. Can we see clues for a potential bounce?

Graphic provided by: TeleChart2007.

On-balance volume (OBV) shows weakness that favors a downside break. OBV surged in August–September when Wal-Mart was strong and declined in October as the stock weakened. Even though the stock firmed the last two weeks, OBV continued lower and hit a new low in the last two days. OBV needs to break its mid-October highs to confirm strength in WMT and reinforce a breakout on the price chart.

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.

Title:	Editor
Company:	TDTrader.com
Address:	Willem Geetsstraat 17
	Mechelen, B2800
Phone # for sales:	3215345465
Website:	www.tdtrader.com
E-mail address:	arthurh@tdtrader.com
Traders' Resource Links
TDTrader.com has not added any product or service information to TRADERS' RESOURCE.

Click here for more information about our publications!

PRINT THIS ARTICLE

Request Information From Our Sponsors

DEPARTMENTS: Advertising | Editorial | Circulation | Contact Us | BY PHONE: (206) 938-0570

Comments or Questions?	Article Usefulness
	5 (most useful) 4 3 2 1 (least useful)

ON BALANCE VOLUME

Wal-Mart Firms At Support

SUBSCRIBE TO OUR FREE EMAIL NEWSLETTER!

SUBSCRIBE TO OUR FREE
EMAIL NEWSLETTER!