Nadine, not an earnings disappointment, but a revenue disappointment. In addition, the
technicals are absolutely screaming correction, including a very reliable one for me, a
Stochastics, with parameters of 25, 3, and 55.(time periods K, slowing, and time
periods D, respectively.)
Sto.chas.tic (st kas'tik) adj. 2. Math. designating a process having an infinite
progression of jointly distributed random variables.-- Webster's
The Stochastic Oscillator compares where a security's price closed relative to its
trading range over the last x-time periods.
The formula for the %K parameter of the Stochastic is:
For example, to calculate a 10-day %K: First, find the security's highest high and
lowest low over the last 10 days. For this example, let's assume that during the last 10
days the highest high was 46 and the lowest low was 38--a range of 8 points. If
today's closing price was 41, %K would be calculated as:
The 0.375 in this example shows that today's close was at the level of 37.5% relative
to the security's trading range over the last 10 days. If today's close was 42, the
Stochastic Oscillator would be 0.50. The 0.50 would show that the security closed
today at 50%, or the mid-point, of its 10-day trading range.
The above example used a %K Slowing Period of 1-day (no slowing).
A moving average of %K is then calculated using the number of time periods you
specified in the %D Periods. This moving average is called %D.
Finally, multiply all stochastic values by 100 to change decimal values into percentages
for better scaling (e.g., 0.375 is displayed as 37.5%).
The Stochastic Oscillator always ranges between 0% and 100%. A reading of 0%
shows that the security's close was the lowest price that the security has traded during
the preceding x-time periods. A reading of 100% shows that the security's close was
the highest price that the security has traded during the preceding x-time periods.
Stochastic Oscillators can be used as both short- and intermediate-term trading
oscillators depending on the number of time periods used when calculating the
oscillator. When displaying a short term Stochastic Oscillator (e.g., 5-25 days), it is
popular to slow the %K value by 3-days.
There are several ways to interpret a Stochastic Oscillator. Three popular methods
include:
1) Buy when the Oscillator (either %K or %D) falls below a specific level (e.g., 20)
and then rises above that level, and sell when the Oscillator rises above a specific level
(e.g., 80) and then falls below that level.
2) Buy when the %K line rises above the %D (dotted) line and sell when the %K line
falls below the %D line.
3) Look for divergences. For example, where prices are making a series of new highs
and the Stochastic Oscillator is failing to surpass its previous highs.
All this may sound like the Jet Propulsion Lab folks Mars party, but I've made so much
money using this indicator on certain stocks, its scary. (Netscape is another stock,
where this indicator is six for six.)
We also have some additional fundamental support for a short position, being that
sooner or later, WMT will have to admit that their international objectives are not
realistic, and this will reduce the confidence of the investment community of their future
growth. Also, same store sales are up only 5%. Cash flows are showing warning signs
as inventory financing is tight.
PLUS, WMT margins are 2.5-2.9%, and are really not high enough IMO, to support their growth objectives.
I have met with senior executives of WMT many times, and recently, on many different
projects and business subjects. They are struggling to come up with a coherent growth
strategy, are still blinded by the international realities, and are very occupied in
managing the current beast. Cracks in the dike are sprouting up, much like K-Mart in
the eighties. Target Stores (a division of Dayton-Hudson) is driving Walmart nuts, as
they are increasing market share, from Walmart.
We've seen this investor euphoria before with retail stocks--Best Buy, Service
Merchandise, Fingerhut, QVC, Home Shopping Network, the office super stores,
Circuit City, Walgreens, CVS, Fay Drugs, etc., and all of them seemingly plummets
over night,(corrects).
Nothing fundamental has really changed with WMT since Jan., yet the stock is up
+70%. I expect the correction in July, based on all of the above. The stock
repurchase should be nearly complete. Down down the lethal canisters plummet! Good Trading! LF |
