Wal-Mart Stores (WMT) Earnings Preview

Wal-Mart Stores (WMT) is set to report their most recent quarterly earnings report before the open of tomorrow’s trading session. The stock is currently trading around $57.30 in a 52 week range of $56.30-$90.97. The stock is moderately higher on today’s session but has been massively underperforming the broader market this year. The stock has fallen over 33% year to date and is less than $1.00 off of its 52 week lows going into the report.

Despite the modest move higher in the stock today it appears that WMT is setting up well for a short ahead of earnings. Over the past 12 quarters the stock has only rallied 3 times on earnings day and on average moves about 2.8% higher or lower. The chart is also very weak with shares of WMT trading well below the Ichimoku Cloud. The cloud slopes lower and both of the major moving averages are well below the cloud. Our proprietary indicator, AlphaTracker, also shows that institutional traders are net short the stock moving into the earnings release. With all of these factors showing a bearish setup in WMT I will be looking to get short before the release.

Options markets are currently implying a move of around $2.00 by this Friday’s close which I can use to calculate a downside target around $55.30. Using this target I can select an options strategy.

Potential trade: Buying the WMT Nov 56.5-55.5 Put Spreads for $0.30
Risk: $30 per 1 lot
Reward: $70 per 1 lot
Breakeven: $56.20