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Dow Jones Forecast: Stocks Plunge, Traders Await WMT Earnings

Dow Jones Forecast: Stocks Plunge, Traders Await WMT Earnings

2019-08-14 21:30:00
Peter Hanks, Analyst
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Dow Jones Price Forecast:

  • An inversion of a widely watched yield curve shook investors and sent the Dow Jones, S&P 500 and Nasdaq 100 almost 3% lower
  • Abysmal earnings from Macy’s (M) saw the retail sector get hit particularly hard. Markets now await the quarterly report from the sector’s largest member, Walmart (WMT)
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Dow Jones Forecast: Stocks Plunge, Traders Await WMT Earnings

The Dow Jones fell under considerable selling pressure on Wednesday as traders were rattled by an inversion of the 2s10s yield curve and disappointing earnings from Macy’s. Despite a series of Tweets from President Trump calling for further rate cuts, even the prospect of looser monetary policy was unable to halt the decline. As Thursday trading approaches, investors will look to earnings from Walmart, Alibaba (BABA) and Nvidia (NVDA).

Dow Jones Forecast: Stocks Plunge, Traders Await WMT Earnings

While retail Armageddon continued Wednesday, Walmart could look to heal wounded sentiment if earnings seriously impress. In recent quarters, the retail-giant has highlighted uncertainty due to trade wars but has also stated the company would bear the majority of the increased costs due to tariffs. While that may bode well for consumers, it could eat away at already razor-thin margins – a potentially concerning development for WMT shareholders.

S&P 500 Price Chart: Daily Time Frame (January 2017 – August 2019) (Chart 1)

SPY price chart and WMT stock

Chart created with TradingView

Should shareholders voice that concern, Walmart could go the way of other retailers which have been brutally battered since the advent of the US-China trade war – adding onto the constant pressure offered by Amazon (AMZN). Walmart’s size and adaptability has allowed it to maintain much of its dominance amid Amazon’s rising power, which has seen Walmart’s share of the retail-tracking XRT ETF climb to new heights. The relative strength of Walmart has not, however, spilled over into the industry at large as XRT slips to the lowest ratio compared to the S&P 500 since early 2009.

Walmart (WMT) Price Chart: Daily Time Frame (February – August) (Chart 2)

WMT stock chart earnings

Chart created with TradingView

With Walmart tagging all-time highs just last month, the retail stock has a lot to lose if earnings disappoint or if guidance is aimed lower. Fortunately for bulls, WMT shares will look to enjoy two nearby support levels that conjoin slightly above $104. Working in tandem, they may be able to stall a move lower on the back of a modest miss, but anything larger would likely see them rendered obsolete as the broader market sentiment looks to weigh on shares across the board and exacerbate the impact of bad news. On the other hand, potential resistance coincidentally resides at the top of the implied price range near $110.

Alibaba Earnings and Chinese Retailers

Alongside Walmart, Chinese e-commerce giant Alibaba (BABA) will report its second quarter earnings. On Tuesday another Chinese online retail company, JD, surprised markets when it beat earnings expectations, causing the stock to soar. Consequently, some optimism may have spilled over into BABA shares which enjoyed a bump in anticipation of the company’s quarterly findings. Regardless, BABA has posted a commendable return in the year-to-date compared to its peer JD and the China-tracking FXI ETF.

S&P 500 Price Chart: Daily Time Frame (January 2016 – August 2019) (Chart 3)

BABA stock price chart and S&P 500

Chart created with TradingView

To that end, investors will sift through the quarterly report in search of any mention of the US-China trade war and any possible headwinds offered by it. Unsurprisingly, implied volatility is elevated ahead of earnings at 5.5% which offers an implied price range of $17. The area enjoys few technical levels of note aside from the 200-day moving average at $165. Still, a modicum of resistance may reside near the upper bound of the implied price range around $170 while a possible support trendline from January looks to take shape around $155.

Alibaba (BABA) Stock Price Chart: Daily Time Frame (July 2018 – August 2019) (Chart 4)

BABA stock price chart earnings

Chart created with TradingView

While both Walmart and Alibaba posses market moving potential under normal circumstances due to the fundamental implications they carry, the current state of equity trading is anything but normal. Thus, it will be up to traders whether or not the reports warrant a widespread reaction, but Wednesday’s price action suggests initial reactions may may be downwardly skewed.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Dow Jones, DAX 30, FTSE 100 Forecasts for the Week Ahead

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