Why Berger Thinks Wal-Mart Shares Could 'Shine Again Soon'

Shares of Wal-Mart Stores, Inc. WMT surged 1.74 percent on Wednesday trading. In a blog post published Thursday morning, the Steady Trader’s head of investment strategy, Serge Berger, explains this move pushed the stock above an initial technical line of resistance.

The expert assures that, while the shares have still got plenty of hurdles to overcome, the odds of Wal-Mart delivering a better performance over the coming months, both in absolute terms and relative terms, are increasingly larger.

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Berger highlights the importance of having some context when talking about Wal-Mart. He explains that, when the economic growth rate slows, "people tend to flock to Walmart for shopping, and investors in turn bid up WMT stock. And with the rate of change in economic data having slowed all year at the margin — just as we find ourselves very late in a cyclical bull market and economic recovery cycle — the time might be right for WMT shares to shine again soon.”

A Look At Performance

Year-to-date, Wal-Mart’s stock is down more than 15 percent, versus the S&P 500’s 1.14 percent rise. Moreover, over the past several years, the company has lagged the S&P 500 and other market indexes.

From a technical perspective, the year-to-date relative price movement -compared to the Consumer Staples Select Sect. SPDR (ETF) XLP- “has taken the shape of a falling wedge pattern — but if Walmart can break out of that wedge to the upside, it would have obvious bullish implications,” Berger expounds.

The expert then goes on to look at the stock from a multi-year perspective.

In this case, “the price movement so far in 2015 has been a one-way street to the downside, resulting in a retest of a major area of support near the $70 level. Both the duration and slope of the decline since January has been extensive, and this multiyear area of support is a good an area as any for a better bounce to occur.”

Finally, looking at the daily chart, investors can notice that “the bullish reversal day/bearish capitulation price action from July 1 remains in place, and that after bumping into its 50-day simple moving average (yellow line) in mid-July, WMT stock in late July formed a higher low versus the early July lows.”

After Wednesday’s rally, the shares managed to close above their 50-day moving average for the first time in almost six months, “and momentum indicators are also curling back up.”

Bottom Line

Berger concludes that investors could look to build a position in this stock and expect for a push into the mid- to high $70s, “using the July 1 lows as a last stop-loss area.”

From a risk management standpoint, the analysts mentions the upcoming earnings call, scheduled for August 18, “which is to say that trading positions should be sized right (small) through this earnings announcement.”