Will the Walmart (WMT) announcement on an earnings miss have an effect on the overall market on Tuesday? Oh, I don't know, but I do know that looking at the chart could be instructive, when it comes to talking about bottoms.
I've written quite a bit about bottoms of late, but let's take a look at Walmart. It has had a decent rally off the lows -- about 12%, but step back and look where it rallied to: resistance. Now step back and consider that the 9-plus months prior to the May gap down (on similar news to what we saw on Monday after the bell) was the top. Recall my view that typically if the top took 9 months to build then the base should take a similar amount of time -- at the very least. So with Walmart two months into what might be a base -- we don't know if it's a base or a way station -- how can anyone say the bottom is in with any confidence?
Let's say Walmart comes down on Tuesday into that $120 area and over the course of the next few days it holds over $118-$120 -- it is an area, not an exact level, which was the same place it held in May and June. And let's say it starts to trade something like I have drawn in blue over the next two to three months, isn't that what base building looks like? Doesn't that look more like a base than what we've seen in the mere two months since May?
All I'm saying is that this is how bases should form. There should be a series, not one or two, but an entire series of back-and-forth moves that tell us where the buyers live. It tells us -- several times -- what price area buyers are willing to step up to the plate at. It also tells us where they want to sell the first several times as well.
I know I have shown this chart of Apple (AAPL) before, from early 2000 to the 2003 low. Apple wasn't even a real darling of the market then but that gap down in the fall of 2000 was followed by two more years-yes years-of back and forth. And then Apple plopped back to the bottom of the range and could hardly lift itself off the mat for a year from late 2002 to mid-2003.
But that is how bases form. That is how we find where buyers live. And we often must do it over and over and over again. Because that is how we see accumulation and how we see bases built. Think of it like the stock fell and broke its arm and maybe its leg, too. I realize nowadays broken limbs seem to repair themselves more quickly than how long I thought it took them to heal when I was a kid -- but it still takes time. Healing broken bones is not quick, no matter how impatient we are.
Healing broken stocks is much easier in a bull market than it is in a bear market.
