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LIN. REGTREND


Walmart And The Economy In Trouble

02/28/11 08:48:33 AM
by Alan R. Northam

The long-term uptrend of Walmart looks to be coming to an end, and with it the doom of a recovering economy.

Security:   WMY
Position:   N/A

Figure 1 shows the long-term picture of Walmart (WMT). The bottom window of Figure 1 shows the daily trading bars along with the 200-day linear regression trendline and its upper and lower channel lines. Note that price is now testing support from the lower channel line. A clean break below this line of support will signal a reversal in the long-term trend of Walmart.

FIGURE 1: WMT, DAILY. This chart shows the daily price chart of Walmart in the bottom window along with the 200-day linear regression trendline and its upper and lower channel lines, the linear regression slope indicator in the top window, the R-squared indicator in the second window, and the relative standard error indicator in the third.
Graphic provided by: MetaStock.
 
The linear regression slope indicator in the top window is currently above its zero line but looks to be rolling over into a downward direction. This indicates that the price is starting to decelerate, and price deceleration normally occurs at the end of a rally.

The R-squared indicator is shown in the second window from the top. This indicator is well above its critical level, indicating a very strong uptrend in progress. However, the R-squared indicator is also rolling over and is now pointing in the downward direction, indicating that the strength of the upward rally is now starting to weaken.

The third window from the top shows the relative standard error indicator. This indicator is a measure of volatility and is currently below 0.2, indicating low volatility. However, also note that this indicator is starting to move upward, indicating that volatility could be on the rise. Note: Volatility normally starts to rise quickly at the end of a rally.

The long-term statistical analysis shows a strong uptrend in progress. However, this trend looks to be mature and could be on the verge of rolling over to the downside.

The last time Walmart was in this particular setup was in April 2010 (see red vertical line) when its price fell 12%. During that time, price was in a position of strength or above its 200-day moving average. In the current setup, the price is in a position of weakness or below its 200-day moving average. Thus, if price breaks down below its lower channel line, price could fall a lot further than 12%.

FIGURE 2: WMT, DAILY. This chart shows the daily price chart of Walmart in the bottom window along with the 50-day linear regression trendline and its upper and lower channel lines, the linear regression slope indicator in the top window, the R-squared indicator in the second window, and the relative standard error indicator in the third.
Graphic provided by: MetaStock.
 
Figure 2 shows Walmart over the intermediate term. The bottom window of Figure 2 shows the daily price bars along with the 50-day linear regression trendline and its upper and lower channel lines. Price has broken down below the extended lower channel line, signaling a reversal in the intermediate-term trend from up to down. Confirmation of this trend reversal will come once the linear regression slope indicator moves below its zero line and the R-squared indicator moves back above its critical line.

Figure 3 shows the short-term trend of Walmart. On the price chart, in the bottom window I have shown the 10-day linear regression trendline along with its upper and lower channel lines. The linear regression trendline continues to slant downward, indicating that the short-term trend is in the downward direction.

FIGURE 3: WMT, DAILY. This chart shows the daily price chart of Walmart in the bottom window along with the 10-day linear regression trendline and its upper and lower channel lines, the linear regression slope indicator in the top window, the R-squared indicator in the second window, and the relative standard error indicator in the third.
Graphic provided by: MetaStock.
 
In the top window. I have shown the linear regression slope indicator. Note that this indicator is below its zero line and continues to move downward. This is an indication of price acceleration and signals a healthy downtrend that will continue lower in the days ahead.

The next lower window shows the R-squared indicator. This indicator is a measure of strength and is currently above its critical level and pointing upward, indicating a strong downtrend in play. This also signals that price will continue lower in the days ahead.

The third window down from the top shows the relative standard error indicator. This indicator is a measure of volatility and currently shows extremely high volatility. High volatility normally signals a trend reversal ahead. Thus, this indicator is the fly in the ointment that a strong short-term downtrend is in play and will continue to do so. The relative standard error indicator is currently indicating extremely high volatility and is thus warning of a possible short-term reversal in trend. We need to see this indicator start to turn down soon, or the short-term downtrend could be in trouble.

The short-term statistical analysis shows a strong short-term downtrend in play. However, the presence of extremely high volatility warns that this strong short-term downtrend could be in trouble.

In conclusion, the long-term statistical analysis shows that Walmart could be on the cusp of turning down. A break down below the long-term lower linear regression channel line will signal a long-term trend reversal from up to down. Over the intermediate term, there is the possibility that the trend has already reversed downward but is yet unconfirmed. If the intermediate-term downtrend is confirmed, then the odds greatly increase that the long-term trend will turn down. Over the short term, the trend is now in a strong downtrend. As long as the short-term trend remains down, the intermediate-term downtrend should be confirmed.

Bottom line is that all signs point to Walmart, reversing its trend from up to down. If Walmart, the world's largest retailer, reverses its long-term trend downward, it will signal a downturn in the retail market sector and spell doom to a weak recovering economy.



Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

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