August 5th, 2007

Life Cycle Investing: Walmart (WMT)

What a sorry state this past week was. And what a sorry state IBD’s Industry Group rankings turned out to be, as well. Those who follow this blog know that I’ve mined and found good buying opportunities among industry groups that move up 50 or more in the rankings. These groups, although often not among the top 100 out of 197 groups, often are the groups that wind up at the top of the industry rankings 3 or months out. But, after scanning the charts of all the stocks within groups that moved up 50 in rankings this week netted not one good buy candidate …. not even one candidate that I would put on a watchlist of stocks with opportunities in the near future.

As a matter of fact, when looking at one of those Industry Groups, Retail-Major Discount Chains, I focused on a stock that looks terribly week, is near a major support and, just might wind up being a terrific short candidate if the market continues to be retreat (and, for all you fundamentalist, the economy turns weak, especially the consumer). Take a look at this chart for Walmart (WMT):

Notice the upward-sloping channel that’s been underway since 2005. During the recent market correction, WMT retreated to the bottom boundary of the channel. In all likelihood, WMT will bounce off that lower boundary and attempt to broach the upper boundary for a greater than 13% increase, if the market firms. But notice the resistance trendline approaching in the mid-50’s. To get a sense of the full impact of that trendline, let’s zoom out on the chart for a longer-term perspective:

I’ve written a number of postings about Life Cycle Investing …. that is, taking our investment timing clues from the life cycle of the stock. And from the very long-term descending triangle it has been forming since peaking in 2000, WMT is nowhere near being a good candidate for anything other than a short in-and-out trade.

As a matter of fact, given the state of the current market, instead of being a buy candidate, WMT appears to be a good short candidate. With the amount of institutional support WMT has been getting recently, once those guys try to get out, it will be like someone crying fire in a crowded theater. If there’s a stampede for the exit doors and many will get trampled. And then again, maybe that’s what’s been happening over the past seven years. An orderly retreat. However, the data proves otherwise.

The percentage of stock held by institutions has increased over the past several months, as the stock gone nowhere fluctuating between 45 and 50 has increased from 35% to 40%, the largest percentage since 2002. For a stock with such a large float, that’s a huge number of shares.

We can’t predict the future, the best we can hope for is to react and do it quickly. But if I had to make a bet, I’d bet the stock will head south.

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  • Robert Blum

    Guru, I hope this note finds you well. I consider myself to be a silent visitor venturing off the beaten path to read, review and study your stock charting blogs – which I find most substantive. Should you ever doubt your efforts are fully appreciated, then please consider placing your chart study blogs to a wider audience on a more visible/prominent sight. Whether it would be using a platform of a business (financial institution or websight, tv/radio media websight) or educational (college departmental websight, fiancial think-tank) or community/governmental websight, others will appreciate and understand that education is continual, forever. Thanks.

  • Guru

    Roger, thank you so much for those nice words. I very much enjoy writing this blog and plan to continue doing so for a long time to come. For the time being, I’m spending most of my time trying to finish a book that is an outgrowth of this blog. I hope to finish the first complete draft sometime in the next several of weeks. For the time being, I’m calling it “Run with the Herd and Get Rich” … if you care to read it, I’d welcome you opinion.