Can Walmart Shake the Trade Fear?

It’s another down day for stocks across the globe after the Trump administration raised the stakes in its trade war with China, saying it would slap 10% tariffs on an extra $200B worth of Chinese imports. The new list appears to target Beijing’s important manufacturing export industries, going after electronics, textiles, metal components and auto parts. Food and personal sectors are also set to be affected, as well as beauty goods and makeup products.

Let’s consider Walmart (ticker: WMT):

The VantagePoint platform recently indicated upside momentum.

Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average between 7/9/18 and 7/10/18.  We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position the day before.  This indicator measures strength and weakness for a 48-hour period, in this case strength.  The move to the GREEN position further makes the case for a potential bullish scenario. We also have the predicted high and low above yesterday’s actual high and low indicating further strength.  I want to play the VP bullish indication.

Strategy Discussion

For active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.

Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation.  The first thing that you want to do is calculate your target price.  In order to perform this calculation, you need three pieces of information:  current price, expiration date and the implied volatility for that expiration date.  For WMT this calculation yields a target strike of ~$88.5.  You may want to consider the WMT July 20th regular expiration 87.5/88.5 call spread, buying it for $0.27.  The most you lose is the premium paid and the most you can gain is the width of the spread less any premium paid.  Max risk = $0.27 and max reward = $0.77.  This means that you are getting odds of 2.70:1.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.

Follow me on Twitter @MikeShorrCBOT