Walmart (WMT) shares more than doubled in value from their 2016 low to their 2018 high. The high was made in January this year near the $107 level, but then the rally quickly reversed direction. By June the stock had retraced nearly 50% of its 2016 to 2018 gain, and was back down to the $82.50 area.
But Walmart showed its resiliency and since the retracement it has managed to fight its way back to the $97.50 level. The price action this year, the pullback and partial recovery, has created a large cup and handle formation on the weekly chart. The handle portion of the pattern formed just above the 40 week moving average and just below $97.50 rim line resistance.
The weekly relative strength index crossed above its 21 moving average near the bottom of the cup. This reflects the improving long term momentum. Chaikin money flow has been also been improving, suggesting increasing buying interest in the stock.
On the daily time frame, Walmart shares broke above a declining triangle downtrend line this month. They have twice retested resistance in the $97.50 area (the weekly cup and handle rim line) and once retested triangle resistance-turned -support.
Daily moving average convergence/divergence is making a bullish crossover above its centerline. This is a sign of improving positive price momentum and short term trend direction. The 50 day moving average made a “gold cross” above the 200 day average in September. This is considered an intermediate to long term bullish signal.
Chaikin money flow on this time frame has crossed above its 21 day moving average, but is still in negative territory.
Another potential negative is the large downside gap that has yet to be completely filled. The lower end of the gap is also the current position of the flat 200 day moving average.
Several high wick candles have formed after retests of the $97.50 area, which is not particularly bullish. But well defined lines of resistance and support, the $97.50 area the $94 to $93 area respectively, are in place. These are the levels to watch on the daily chart going forward.
If Walmart shares breakout above $97.50, the weekly cup and handle pattern projects a large upside move. The old highs would be taken out and a 15 point measured move gain to the $112.50 would be the upside objective.
A breakdown on the other hand, first fills the vacant gap, and at that point, the future intermediate term direction of the stock price would rest on the support strength of the 200 day moving average.