Walmart and Target Face Christmas Eve in Bear Market Territory - TheStreet.com

Retail giants Walmart Inc. (WMT) and Target Corp. (TGT) were strong stocks as 2018 began. Walmart, a component of the Dow Jones Industrial Average, had a bull market run of 95% from a low of $56.39 set in November 2015 to its all-time high of $109.98 set on Jan. 29. Target had a bull run of 86% from a low of $48.56 set in June 2017 to its all-time high of $90.39 set on Sept. 10.

These huge retailers suffered with the stock market in December and are now in bear market territory. Here's my analysis and how to trade them.

Walmart closed Friday at $87.13, down 11.8% year to date and entered bear market territory - down 20.8% from its Jan. 29 high of $109.98. The stock set a secondary high of $106.21 on Nov. 12, which was a "key reversal" day, a warning for its holiday season. The stock set its December low of $86.14 on Dec. 20.

Target closed Friday at $61.13, down 6.3% year to date and also entered a bear market - down 32.4% from its Sept. 10 high of $90.39. This stock ended last week under a "death cross" and set its December low of $60.74 on Dec. 20.

A daily "key reversal" occurs when a stock sets a cycle high then closes below the prior day's low. A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving indicating that lower prices lie ahead.

Earnings Warnings Were Negative for Both Walmart and Target

Walmart had a positive reaction to earnings on Aug. 16, and the stock traded around its annual pivot of $96.41 between Aug. 20 and Oct. 23 before popping to $106.21 when the "key reversal" formed. This was confirmed by a negative reaction to earnings on Nov. 15.

Target had a positive reaction to earnings on Aug. 22, which fueled a rally to its Sept. 10 high of $90.39. Weakness since this high was stabilized by crisscrossing my annual and semiannual pivots at $81.64 and $84.71 between Oct. 4 and Nov. 15 when this zone failed to hold. This was a warning before a big price gap lower in a negative reaction to earnings reported on Nov. 20.

These daily and weekly charts will show how to trade volatility that may occur following store guidance released to the media Monday and post-Christmas day.

The daily chart for Walmart

Courtesy of MetaStock Xenith

The daily chart for Walmart shows the huge price gap higher on Aug. 16. This also was a gap above the 200-day simple moving average now at $90.81. The price gap is measured from the Aug. 14 high of $91.12. Price gaps are almost always filled, and this was the case this time as the low on Dec. 17 was $90.16. Gapping below the 200-day SMA on Dec. 20 sets up the Christmas Eve warning.

The weekly chart for Walmart

Courtesy of MetaStock Xenith

The weekly chart for Walmart is negative with the stock below its five-week modified moving average of $94.03. The stock is above its 200-week simple moving average or "reversion to the mean" now at $77.90, which was last tested during the week of July 14, 2017, when the average was $73.34. The 12x3x3 weekly slow stochastic reading ended last week at 23.84 down from 33.73 on Dec. 14. Note that at just before the high the stochastic reading was above 90.00 as an "inflating parabolic bubble." This indicated that investors should have reduced holdings. The horizontal lines are the Fibonacci Retracement levels of the 95% rally from the November 2015 low of $56.39 to the high of $109.98 set on Jan. 29.

Given these charts and analysis, my trading strategy is to buy weakness to the 50% retracement at $83.14 and to my semiannual value level of $81.81 and reduce holdings on strength to the 38.2% retracement of $89.46 and the 200-day simple moving average at $90.81.

The daily chart for Target

Courtesy of MetaStock Xenith

Target broke below two horizontal lines on Nov. 14 and Nov. 15, which are my semiannual and annual pivots at $84.71 and $81.64, respectively, which was a major warning. The stock then closed below its 200-day simple moving average of at $78.29 on Nov. 19, then set another warning pre-earnings on Nov. 20. The price gap lower stabilized around my quarterly pivot at $70.42 which failed to hold on Dec. 4, leading to the low of $60.77 set on Dec. 20. Note the "death cross" conformation on Dec. 19.

The weekly chart for Target

Courtesy of MetaStock Xenith

The weekly chart for Target is negative but oversold with the stock below its five-week modified moving average of $71.87. The stock is also below its 200-week simple moving average of $71.46 which is also the "reversion to the mean." The 12x3x3 weekly slow stochastic reading fell to 14.42 last week down from 19.33 on Dec. 14, falling further below the oversold threshold of 20.00. Note that at the high the stochastic reading was above 90.00 as an "inflating parabolic bubble." This indicated that investors should have reduced holdings. The stock is below all horizontal lines that are the Fibonacci Retracement levels of the 86% rally from the June 2017 low of $48.56 to the Sept. 10 high of $90.39.

Given these charts and analysis, investors should reduce holdings on strength to the 61.8% retracement at $64.54 then to the 50% retracement at $69.48.

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