Extreme Fear Grips Walmart Investors — But Here's Why The Stock Will Bounce

Walmart, Inc WMT stock was falling further Wednesday after plummeting over 11% on Tuesday following its first-quarter 2023 earnings print.

The multinational retail corporation reported earnings of $1.30 per share, missing the $1.48 estimate, and revenues of $141.6 billion, which beat the estimate of $138.88 billion. Walmart lowered its guidance for the second quarter, expecting EPS to come in flat or up slightly.

On Wednesday, a swath of analysts weighed in on Walmart and lowered their price targets. Truist Securities analyst Scot Ciccarelli has the lowest expectations of the group, reducing his share price estimate from $150 to $139, while Guggenheim analyst Robert Drbul is on the high end, dropping his target from $185 to $175. 

Walmart, like many retailers with a business model based on offering products at the lowest price, is struggling with inflation as it tries to balance keeping its prices low amid rising costs of inventory and logistics. Soaring food prices have also caused customers to cut back on purchasing products such clothing and home furnishings, which have higher margins.

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The Walmart Chart: When Walmart opened Wednesday’s session with a 2.34% gap down, it was the second time in a row the stock has gapped down to start the trading session. The two consecutive gap downs have created a bearish kicker candlestick pattern, which indicates not only lower prices, but that a third gap down could take occur Thursday.

• If that happens, Walmart will form a possible three-gap-down reversal pattern, which indicates the stock may reverse to the upside. Traders and investors looking to play the possible bounce can watch for a reversal candlestick, such as a doji or hammer candlestick, to form on smaller time frames on Thursday.
• A bounce is also likely to take place over the next few days because Walmart’s relative strength index (RSI) is measuring in at about 17% on the daily chart. When a stock’s RSI falls below the 30% level it becomes oversold, which can be a buy signal for technical traders. A RSI of less than 20% is considered heavily oversold.
• Traders and investors looking to take a long-term position will likely want to wait until the fear selling taking place on Walmart subsides. Sideways trading on decreasing volume may indicate the bottom is in, at least temporarily.
• Walmart has resistance above at $124.95 and $129.93 and support below at $117.66 and $111.86.

See Also: 'The Execution Here Is So Poor That It's Embarrassing': Why Jim Cramer Says Walmart Should Do Some Soul-Searching

Photo courtesy of Walmart.