Walmart’s price behavior over the past 3 1/2 months has been very range bound, the question is, is it finally ready to run?
If you’ve been a trader of Walmart over the past year, you know that it tends to stay within a set range. Over the past 3 1/2 months that range from Walmart has been $53-$55/sh. Oh sure, there have been some periods where it briefly went above $55/sh, but could never hold that price level. Take a look at the chart below.
It’s pretty easy to see from the accompanying chart that Walmart has in fact been stuck in a range. This indicates to me, that the broader market thinks that Walmart should be priced somewhere between 53 and $55 per share. When Walmart reaches $55 the sellers come in increasing the downward pressure on the underlying equity. When Walmart reaches $53 a share, the buyers step in increasing the demand for the stock and driving the stock price back up towards $55. The question what needs to happen to change this balance? I think it is going to need some sort of fundamental change, something that says to the investment community that Walmart is no longer correctly priced. This could be an earnings surprise, it could be new business ventures in South Africa or perhaps even in China. Bottom line, without some sort of fundamental change to the investment community’s thinking about Walmart it’s likely to stay stuck in its range.
For those of us who trade options this provides an excellent trading opportunity. Trades such as bull puts, bear calls, iron Condor’s, and one of my favorites, the double diagonal work extremely well. I’ve been in the double diagonal on Wal-Mart for well over a year now and the trade is yielded about 1 1/2% return per month. Not a lot, I know, but certainly a nice addition to any portfolio.
When and if Wal-Mart is able to break through and close above $55 per share I will consider moving the range that Walmart is likely the trend in from $52.50-$55 up to a new and higher range of $55-$57.50. I still suspect that Walmart will respect these new levels of support and resistance.
Bottom line, Walmart is a great traders stock. The premiums are not high, true. But the consistency of the trade makes it quite attractive.
Just remember, there is no future fact, what happened yesterday does not necessarily dictate what’s going to happen tomorrow.
All the best in your trading,
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