Wal-Mart (NYSE: WMT) has been in a downswing since the beginning of the year. After hitting an all-time high of $89.86 in January, the stock has dropped almost 17%. But there may be hope.
First of all, Wal-Mart stock is oversold based on the daily slow stochastic readings and the 10-day RSI. While it hasn’t been unusual to see the stochastic readings in oversold territory over the last 10 months, the RSI has not reached oversold levels very often.
Having both indicators in oversold territory at the same time has only happened three previous times in the last 10 months. In those previous occasions, the stock stabilized twice and rallied sharply once.
The weekly chart is even more encouraging, as we see a long-term trendline that should provide support for the stock. This trendline connects the lows from the last three years. It’s currently sitting at the $74 level with the stock trading right around $75.
We also see that the weekly oscillators are at or nearing oversold levels. In fact, the weekly stochastic readings hit their lowest reading since 2007, and the 10-week RSI hit its lowest level since 2011. In addition, Wal-Mart stock is looking like it will lose ground in May, which would be the sixth straight monthly loss and the longest monthly losing streak in the last 20 years. I like the odds of a rally in June.
The sentiment toward Wal-Mart stock is less than optimistic, with the short interest ratio sitting at 3.1 and the analyst ratings showing more “hold” and “sell” ratings than “buy” ratings. In fact, there are 31 analysts following the stock and only eight have the stock rated as a “buy.” There are 19 “hold” ratings and four “sell” ratings.
Wal-Mart is in an interesting situation. The market has been moving higher for the last six years and the bull market seems to be running on fumes at this point. But Wal-Mart stock started falling at the beginning of the year and hasn’t been able to halt the slide.
One thing that I went back and looked at is how Wal-Mart performed during the 2000-2003 bear market and the 2007-2009 bear market. In the first bear market, while the S&P 500 lost over 40% from March 2000 through March 2003, Wal-Mart was unchanged. In the second bear market, while the index was losing over 50% from October 2007 through March 2009, Wal-Mart actually gained 10.5% during this same time period.
Why am I talking about bear markets and looking at how Wal-Mart performed during the two previous declines? Honestly, I am getting concerned about the overall market and think we could see a serious correction before the end of the year. If I am right, I want to own stocks and other investments that are going to hold up.
Wal-Mart fits that bill, and with the stock approaching the support on the weekly chart, it seems like a good time to buy the stock. It also doesn’t hurt that Wal-Mart stock has a 2.5% dividend yield, which could help if the market starts to fall.
I would use the 50-month moving average as a stop-loss point. The moving average is currently at $67.59 and climbing. If the stock falls below there, I would be uncomfortable holding it any longer.
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