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Chart of the Day: Wal-Mart Over-Extends

Other than the overall market, one of the most ridiculously overbought stocks is Wal-Mart (WMT). MACD is topping out and reversing. RSI is in the process of pulling back from nosebleed territory. And money has been flowing out of the name for days now. Only problem is WMT has yet to reflect the bearish attitude of money flow.

No wonder UBS just downgraded the stock to a neutral rating.


Look at what happens when our pivot points line up correctly. Look at what happens about 80% of the time on this chart alone.

When RSI moves well above its 70-line, for example, coupled with an over-extension to 1.0 on MACD, we begin to see a reversal in the stock. Add in Money Flow (MFI) and our argument for downside is strengthened a bit more. When Money Flow (MFI) moves above its 80-line, we have an argument for downside.

The same thing happens on stock dips, too.

Look at what happens in the WMT stock when RSI dips under its 30-line now, coupled with a Money Flow (MFI) move sub-20. The stock bounces.

Let’s now look at what happens with Bollinger Bands (2,20) and Williams % Range reads. The 2,20 noted there is a reference to two standard deviations above and below a 20-day moving average. A 2,50 can be used, as well. We prefer 2,20.


When WMT touches or penetrates the upper or lower Bollinger Band, we see a bounce. When confirmed with an extension to zero on Williams % Range, we strengthen our call. We can look at DMI (directional movement), as well.

When DMI spikes as it did in November 2014, we can argue for near-term reversion to mean. Those spikes in DMI are not sustainable, and have a tendency to revert quickly.