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Distribution And Disfavor In Wal-Mart

02/14/05 08:17:39 AM
by Arthur Hill

Wal-Mart has been range bound the last five years, but two key indicators reflect continued selling pressure and disfavor.

Security:   WMT
Position:   Sell

Since first going beyond the 50 level in April 1999, Wal-Mart (WMT) stock has traded on either side of this level and been range bound for over five years. The underlying currents are difficult to decipher when price action is flat, but indicators can turn this drift into a clearer picture.

As its name implies, the accumulation/distribution line is used to measure signs of accumulation (buying pressure) or distribution (selling pressure). A security is under accumulation when the line rises and under distribution when the line falls. A rising line should be accompanied by rising prices and a falling line should be accompanied by falling prices.

Figure 1: Wal-Mart. Even though WMT has traded flat the last three years, the accumulation/distribution line has steadily declined.
Graphic provided by: MetaStock.
Graphic provided by: Reuters.
Even though Wal-Mart has traded flat the last three years, the accumulation/distribution line has steadily declined. The outward appearance of steady prices is misleading as the accumulation/distribution line shows steady selling pressure beneath the surface.

The second indicator is the price relative, and this reflects the performance of Wal-Mart relative to the Standard & Poor's 500. The price relative rises when WMT is in favor and falls when WMT is out of favor. As with the accumulation/distribution line, the price relative has fallen while WMT has remained range bound. This tells us that WMT is out of favor.

A quick look at the price chart shows that the stock is hovering above key support at 51. This level held three times in 2004 and holds the key. In addition, note that the stock gapped lower in early December. This gap has yet to be filled and should be considered bearish as long as it holds. Further weakness below 51 would affirm this bearish bias and open the door to a support test around 45.

Arthur Hill

Arthur Hill is currently editor of, 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 and the main contributor to the ChartSchool.

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