Chart Presentation: WMT

In January 2005 we included a list of nine stocks that we believed had the potential to at least double into 2007. One of those stocks- AIG- rose quickly from around 66 to 73 before running into legal difficulties. We ‘stopped’ this position out when it returned to the original starting point and kept the remaining eight stocks.

Of the eight stocks there are now three ‘doubles’ following the announced take over of AG Edwards by Wachovia that popped AGE by more than 11 points yesterday. One would have been hard pressed back in 2005 to believe that British Airways and DaimlerChrysler would also be major ‘stars’.

Wal Mart (WMT) is clearly the mutt of the group. It is the only stock that is net down since early 2005. On the other hand we mentioned that it was somewhat of a special situation because it might be 2007 before it really started to perform. We are still waiting…

We like Wal Mart as a stock even though we rarely venture into one of their stores. The reason we find WMT fascinating is because it has very clear and strong intermarket ties and relationships.

The charts compare crude oil futures with the Australian dollar futures and the stock price of WMT. The top chart is from September 1996 into July 1997 while the lower chart starts in February of this year.

In general WMT is an anti-energy theme story. It is also the sort of stock that tends to trend inversely to the commodity currencies so when the AUD makes a peak and turns lower we start to get interested in WMT once again.

The AUD topped out at the end of November in 1996 a little more than month ahead of the final peak in crude oil prices in January 1997. As oil prices turned lower the stock price of WMT began to lift so the intermarket argument is that as long as oil prices are strong and pushing it makes perfect sense for WMT to flat lining in the mid to high 40’s.

The AUD made its last top in April of this year so if it is going to lead oil prices lower- as it did in late 1996- then it simply has to hold below the May highs. If oil prices are now in a down trend then we would expect to see WMT start to rise in response. However, even we would be surprised if we got a double out of this before the end of the year.

We have been focusing (fixating) on the biotechs recently because they tend to trend inversely to commodity prices and with the U.S. dollar.

The chart compares crude oil futures with the biotech etf (BBH).

On the BBH chart we have added a number of rather steeply rising red lines. These represent the slope of the recovery path that the BBH tends to take when it rises up off of the channel bottom.

We thought we had a tiger by the tail in April when the BBH began to trend higher along the expected ‘path’. Crude oil prices had just peaked and into early May all seemed right with the world. Then right out of the blue Amgen was hit with bad news and the BBH slumped right back to the support line.

Through trading yesterday another rising trend has emerged which means… that the markets are trading in a manner that suggests that crude oil was at a top the last time it poked up through 66. The wild card outcome would be that it is going to swing back up to the original rising trend that began in April but for this to happen the price is going to have to move well up through the top of the new rising trading channel.

The CRB Index rallied nicely yesterday but the SPX was up .03% with the XOI down .15%. Very small numbers but the point is that the oils were not leading the charge for a change yesterday.

We have been looking for ‘gaps’. Each time a sector like biotech gets bombed the markets return to the commodity theme for lack of anything else to do. Dell’s release of first quarter revenue, margins, and earnings were better than expected after the close yesterday which offers some hope for the tech sector today.