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CONSOLID FORMATION


Wal-Mart Is Off To The Races

03/21/06 08:53:59 AM
by Arthur Hill

After a correction and consolidation, Wal-Mart broke resistance on big volume and is ready to challenge its 2005 highs.

Security:   WMT
Position:   Buy

Wal-Mart (WMT) led the market higher in October and November, but then led it lower in December and January 2006. Despite this weakness, the December 2005–January 2006 decline retraced around the 62% Fibonacci level of the prior advance, and this is normal for a correction. See Figure 1.

FIGURE 1: THE WAL-MART ROLLER-COASTER. WMT led the market higher in October and November and led it lower in December and January.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
After the correction, the stock consolidated between 44 and 47 for almost two months. The consolidation established support at 44.5 and resistance at 47. These were the levels to watch for an upside breakout (47) or a downside break (44.5).

In addition to the consolidation, Bollinger Bands tightened to their narrowest since August. The August narrowing preceded a downside break and a sharp move lower. The narrowness of the bands indicated that a breakout was imminent, but did not provide a directional clue.

It ain't broken until it's broken. Even though the correction was normal, the consolidation showed support, and the Bollinger Bands pointed to an imminent move, the consolidation boundaries still held the key. The stock surged above resistance at 47 with a three-day advance that featured a gap on March 20. This breakout solidifies support at 44.5 and signals a continuation of the October–November advance. The first upside target is the low 50s and this area marked resistance in the second half of 2005. A failure to hold the breakout would be negative and a support break at 44.5 would be outright bearish.



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
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