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Wal-Mart Stores Inc. far from its lowest price

Hi Lou,

Wal-Mart has had a nice run recently. Any thoughts if it has any more steam?


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P.S. Enjoyed the column on SNC.

Hey Clayton,

Good to know you got some value out of the analysis on SNC Lavalin Group Inc., and thanks for the assignment.

Wal-Mart Stores Inc. has enjoyed a nice lift that started in October of 2011 when the shares were trading at $52.50. The seeds of the advance were planted when management under CEO Mike Duke reversed a prior strategy of running on lean inventory and adding up market items in an effort to attract a more affluent consumer. WMT's traditional consumer runs a paycheque to paycheque cycle with larger purchases when there is cash available and less at the end of the pay period. By running on thinner inventory customers made their way to competitors such as dollar stores to fill their pantries.

In February of 2011 Duke said, "There is no greater priority for me than getting sales back in positive territory." Not only did Duke talk the talk he walked the walk. He took the company back to its roots of offering everyday low prices and worked with suppliers to produce smaller packages that hit the shelves at lower price points. Over the last eight quarters the company has beaten street forecasts five times, met expectations twice, and only missed once. Same store sales have been ahead of expectations in the last three quarters.

An examination of the charts will indicate if the break to new highs can be sustained.

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The three-year chart has a number of pattens worth noting. The break above resistance at $52.50 in early October of 2011 followed by the move through $55.00 by the end of the month signalled increasing investor appetite for the shares. The gap up in May of 2012 was triggered by better than expected earnings in first quarter 2013 and was signalled by the MACD and the RSI.

The six-month chart indicates that resistance has formed at $73.00 and the RSI and MACD have both turned lower. In addition, the uptrend line that supported the advance that started in May of 2012 has been broken. The next flex point for the shares will be when WMT reports second quarter 2013 on or about August 16, 2012. At this point it looks like the shares of WMT are on their way to a retest of support at $68.50.

The stock has had a nice run but looks to have gotten ahead of itself. The best course of action would be to monitor performance as we approach the flex point.

Make it a profitable day and happy capitalism!

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