Wanted to do a little something different here after $WMT’s reaction on earnings and lowered guidance yesterday. I don’t typically trade earnings, and I still won’t, but I wanted to see if we had ANY technical reasons for an entry prior to guidance that could’ve given us a clue as to where $WMT might have possibly of gone.
For reference, my bias prior to writing this and looking at the charts is that it was/is a complete gamble (which is why I don’t play earnings) but let’s see what we come up with.
Daily
In May, we broke below this long term (8 year) channel on the LOG SCALE. After this drop, WMT continued downward until it hit a daily demand level from June 2020. Quick jump off this, quick retest, then a slow grind upward until earnings yesterday. We’re currently retesting this demand level, however we know that once a demand level is burned, a stock can react off of it, but we consider it used and will generally ignore it.
First reaction off this demand level was a 9% move, and on the retest a 10% move….unsure what to expect after this third retest, but we’re currently about 2% on the daily off the retest of the retest. Can it be sustained? Unsure, but it’s not something I’m gambling on either way.
Anyway, prior to earnings what did we have?
We had a retest of the bottom of this long term LOG SCALE channel and a rejection with 2 bearish spinning topish candles after that 10% move up since the beginning of July. All of July’s gains were erased yesterday after earnings, essentially back to where you started if you thought the end of June was the bottom.
I like to have more than just one factor (in this case a retest and rejection of the 8 year channel bottom after breaking thru) before making an entry though, so did we have it?
We were above the 5 and 9EMA…that’s not a strong signal to short. RSI was certainly overbought but it wasn’t at record highs…not enough for a secondary confirmation. Two indecisive candles means we could head either way, so for my “regular” secondary indicators, no, I do not see anything that says “WMT is expected to move this way”.
Weekly
On the weekly we had just broken back into a long term channel (8 years) with a 3 white soldiers bullish pattern. The fact that it had a breakdown reversal on the weekly (back into channel) and signaled a 3 candlestick bullish pattern may have lead you to believe that WMT would continue its trend into earnings….only to disappoint.
Confirming what we know now on the daily, the daily showed a potential bearish scenario or, at minimum, indecision while the weekly *showed* bullish action. Let’s look at the secondary indicators to see if we can get a better clue.
So let’s add some secondary indicators and see what may prove to be resistance or support here on the weekly.
What we see is a 3 week rally back into channel (bullish). Right into the 20EMA with a rejection at the 20 and falling far below the 200EMA… with now confirmed RSI divergence (very bearish). Our weekly demand level sits around $114 and I wouldn’t be surprised that we try to test that over the next few weeks or possibly months here.
With these multiple indicators, it’s now shaping up to me that if I were to play earnings, I’d want to potentially bet on the short side. HOWEVER…a breakthru of the 20EMA here would’ve rocketed WMT to at least the 50 and you would’ve been smoked.
Monthly
On the monthly, what I see is that we’re coming off of an outside down candle (June) after an evening starish pattern following almost a year of chop/consolidation….
Had we of looked at this month’s (July’s) candle (the futhest right) yesterday, it would have potentially of shown a bullish engulfing reversal and you may have been tempted to enter long on earnings.
If we add some of these handy dandy secondary indicators here, we would’ve seen a COMPLETE rat’s nest of potential resistance including: 9EMA, 20EMA, Volume POC, way too many for me to comfortably be entering long on an earnings gamble with other macro factors in my mind.
Overall Thoughts
I don’t play earnings for a reason — it’s too much of a gamble and you really don’t know how the market’s going to react to even the slightest guidance surprises.
WMT obviously shit the bed upon bad guidance, but did we have an idea that this was going to happen?
Daily – we hit the channel back test and saw an indecisive two days of candles prior to dropping today. It could’ve just as easily blown back into the channel, but it didn’t.
Weekly – 3 weeks worth of bullish candlesticks right back into the 20EMA….sounds bullish but a complete rejection here at the 20 obviously had us bearish until proven otherwise.
Monthly – complete rejection at the rat’s nest of EMA’s and POC after a potential bullish reversal following an evening star breakdown.
Based on combining all of these factors, and the understanding of the Macro environment that is currently effecting retail, I would’ve placed my bet short on WMT. Just know that had WMT had even the slightest better news for guidance and your shorts would’ve been completely burned. Can’t lose the bet if you never place it…and none of these signals (even combined as shown here) are strong enough for an entry in my book.
