Can Walmart Survive the Retail Fire Sale?
So far, Walmart has avoided the recent heavy selling in the sector.
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Earlier this week, retail stocks were mercilessly hammered. We responded to this industry-wide selloff by ringing the register on one of our long-term retail holdings, TJX Companies (TJX) .
The parent company of T.J. Maxx, Marshalls and HomeGoods fought to hold on to its 200-day moving average (red), but on Wednesday that battle was finally lost. On the same day that the S&P 500 closed at yet another all-time high, TJX Holdings closed at its lowest level in nearly six months.
Similar tales of woe are being heard all across the retail sector. However, not every retail stock is on the ropes.
In fact, one of them looks downright bullish right now. I’m referring to the world’s largest retailer, Walmart (WMT) .
Despite the widespread damage in its sector, Walmart has spent the past three months forming a cup-and-handle pattern (shaded yellow). That bullish formation suggests the Arkansas-based giant could climb as high as $145.
On Wednesday, Walmart closed less than 2% below its all-time high. Shares of the retail giant have gained 16.5% year-to-date, and have climbed over 28% over the past six months.
What is the rationale for holding a retail stock into earnings when the entire sector is falling apart?
It’s an Institutional Thing
Retail stocks are being crushed due to selling by institutional investors. They are the only ones with the power to brutalize a sector in this manner.
It’s particularly interesting that this selling is occurring on no real news. It seems that financial institutions, which hire armies of MBAs fresh out of college, have reached a conclusion on retail, and it isn’t good.
Whatever institutions may have found, it’s causing them to smash even strong names like Target (TGT) . The Minneapolis-based retail chain has gained over 20% year-to-date.
Over the past five sessions, Target shares have lost 6% while the S&P 500 has gained about 1%. Target is scheduled to report earnings on May 20.
The selling in weaker retail names like Best Buy (BBY) has been merciless. Best Buy closed at a five-year low on Wednesday, its shares down nearly 20% since the start of the year. The Richfield, Minnesota-based retailer is scheduled to report earnings on May 27.
Bottom Line
Institutional investors are selling the entire retail sector, but for some reason, they’ve decided to keep Walmart.
Do they know something we don’t know? It's always safe to assume institutions have information that we don’t have. Walmart is scheduled to report earnings on May 21.
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At the time of publication, Ponsi was long WMT.
