Don't Ignore This Chart!

Yes, Virginia, there Really Is Information in Stock Prices


Just ask HD and WMT. These two big retail stocks are part of the Dow Industrials and the S&P 500. Despite a common industry group, the performance for these two stocks could not be any more different. The chart below shows year-to-date performance for Home Depot (HD) and Wal-Mart (WMT). One is up around 18% and the other is down around 18%. Note that Chartists can create a performance SharpChart by entering two or more comma-separated symbols in the symbol entry box. We'll look at these charts individually after the jump. 

Click this image for a live chart

Wal-Mart Meets Chart Expectations

Wal-Mart missed earnings on August 18th and cut guidance. Should we have been surprised? Technical analysts and chartists were not surprised because there were a string of bearish developments well before this warning. Of note, the stock broke support in March, the 50-day SMA turned down in March and the stock broke the 200-day in mid April. The downtrend was long underway and the market was already pricing in bad news before this warning hit. 

Click this image for a live chart

Home Depot Beats Chart Expectations

In contrast to Wal-Mart, Home Depot met earnings estimates and raised guidance on August 18th. This was not a surprise either because the stock was already trending higher and outperforming the S&P 500. HD hit new highs earlier this year and then corrected into June. The stock broke out in July and hit new highs again in late July and August. Notice that the price relative (HD:$SPX ratio) broke out in late June, a few weeks before the stock. This relative strength breakout provided a nice heads up for the price breakout on the chart. 

Click this image for a live chart

Moral of the Story

There is information in price action because the market often prices in the news before it happens. 

Thanks for tuning in and have a great day!
Arthur Hill CMT

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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