Walmart's Chart Before Earnings
Walmart (WMT) is up 13.7% over the past trading year of 251 days. It beats the consumer staples ETF (XLP), which it belongs to, but trails the S&P 500, up about 20% over the same span. Within broadline retail, WMT sits in the middle of the pack: it lags Target (TGT) but leads Costco (COST).
The last earnings report hurt the stock. WMT hit a high of 135.16, then dropped sharply right after that report and never fully recovered. The first high after the gap down, near 126, has not been retested. Other highs sit near 123 and near 118. These stand out as possible upside resistance.
In the short term, the stock keeps topping out around 116. Relative lows come in near 114. Downside support levels sit near 111, 109, and 107. The 107 level is a double bottom, so it stands out most; breaking it would open the door to further declines.
No Strong Direction
The moving averages sit close together, which signals no strong trend up or down. WMT trades below its 63-day EMA at 115.78 as of yesterday's close. The 21-day and 251-day EMAs cluster near 113.50. RSI trends upward and holds above the 50 midline, giving momentum a slightly bullish tilt.
The volume profile shows a node of trading activity between 112 and 115. The most important zone sits between 117 and 121, which holds the point of control - the heaviest trading area of all - at 118.50.
The Example Trade
The expected move for this week's options expiration is plus or minus 4.9% (shown as an orange box). Looking further out to September 18 (yellow box), the expected move is about plus or minus 7%, which puts highs near the intraday level around 123.
The bullish trade: buy the September 18 115/125 call vertical for a $3 debit. Max loss is $300 (the debit paid). With 30 days to expiration, max profit is $700, a risk-to-reward of about 1 to 2.3. The break even is 2.6% up, at 118, well within the 7% expected move. The short strike at 125 caps profit and lines up roughly with the expected move area.
Only $5-wide strikes were available. To lower cost, you could sell a shorter strike, such as the 120 strike, and collect more credit, but that reduces max profit.
Walmart, the world's biggest retailer, reports tomorrow. The report is a major test of how the consumer is holding up.
