BRIAN SHANNON: Hi, I'm Brian Shannon, founder of Alphatrends.net. Today on Tech Trader, we're going to talk about two different stocks in the Dow 30, which looked like they're poised to be able to continue to move higher. Now, at this moment, we're in a period of pullback in the overall market after coming off that 25 plus percent rally from the December of 2018 lows. That leaves us in a position where we've got to be a little bit choosier. So, these stocks might not be 100%, ready to go right here right now. But we have time to anticipate.
And that's great, because when we can anticipate a trade, it gives us the opportunity to do our analysis and see how it's going to set up price wise so that we can come up with our plan of action saying, where do we get in? What is our risk? And what's our potential upside? I
think that when it comes to technical analysis, that a lot of times, people are too focused on individual candles or different patterns that they've heard, such as a cup and handle or a head and shoulders pattern. What we're going to do is we're going to look at some patterns but we're going to delve further into the psychology of how those patterns form and why they form. And then where do the buyers take control in a place where we can control our risk in a good way that gives us the potential for upside opportunity that outstrips what that initial risk will be.
So, let's take a look at these two stocks. First stop, we're going to start with Disney. And then we're to go on to Walmart.
Okay, first stop is shares of Walt Disney Company shares symbol DIS. We can see here on this weekly chart that the stock recently this year broke to new all-time highs. Actually, let's go to a monthly timeframe just to frame that, you can see these are in fact all-time highs. So, going back to the weekly timeframe, I have a 20-, 30- and 40-Week Moving Average approximately equal to the 100-, the 150- and 200-Day Moving Average, all of those moving averages are heading higher showing that money's coming into this stock still.
The breakout past this resistance you can see occurred after multiple years of being underneath it. In fact, from about this time in 2015 was the first time that 120 level was hit. And then here we are four years later, for the first time above it. Now, what we want to do is we want to look at the volume as this stock broke higher. And this is when they reported their Disney Go app. That was a catalyst that caused people to come in and buy the stock. We saw a big surge in volume. Subsequently, as it's consolidating here on this weekly timeframe, you can see the volume has diminished. That's showing us that the stock is holding up price wise.
In other words, we're seeing that bidders are supporting this stock. There's no rush for profit takers to come in and crush this stock right now. So, that's a good sign. The question is, do we buy it here yet? When we look at the daily timeframe, and this goes back now, a little more than a year, you can see, this is where that breakout occurred. Now, it came on a big volume. Notice the shakeout that occurred before that. It would have been rough to have been shaken out in there and then see this happen.
Anyways, the point is the stock gapped higher and continued its run up to 142 creating FOMO for some people, fear of missing out, that's what caused them to chase it. Now, we're seeing that the stock is settling down. One thing of small concern is the direction of the 20-Day Moving Average, which is lower. But if you look back to 20 days ago, that was right around over in here. So, in the next coming days, as we get rid of these three or four days of higher prices, that 20-Day Moving Average will flatten out.
Now, let's go down to the 30-minute timeframe to really see what the plan is on this stock. Now, what I have drawn in here, each one of these candles again represents 30 minutes of data. I have four things that I want to point out. One, the volume weighted average price since that gap, that stock gap tire, and it seemed as though it wanted to hold the average price from that gap. But we've seen a couple of shake outs. The important thing is that the most recent little shakeout from last week, we saw found buyers at a higher price than the previous shakeout.
So, that's telling us one little clue that the buyers might be getting more aggressive. But they're not fully in control yet. What we want to see is this 5-Day Moving Average, that's the orange line, we want to see the stock make a higher high above a flat horizon 5-Day Moving Average. And now it's heading lower, so it's not ready yet. This is where we're in the anticipatory phase and planning stage of where do we buy this stock?
Now, you can see that after the initial consolidation, we had a little bit of a rally, but the 5-Day Moving Average was declining. And it came right up to the volume weighted average price from that peak. So, that volume weighted average price from the peak is still declining in here. What I'd really like to see happen in order for the buyers to regain control and send this stock not only past these highs, but up to 150 plus, would be for something like this to occur. Maybe the stock runs up, it gets people excited, but then we pull back, make a higher low. And then I'd like to buy a break beyond this peak right here. This is 136.48 was that high.
If it did that, from a swing trader's perspective, if I was to purchase above that level, I would set my stop underneath the most recent relevant higher low, which let's say would occur right in here. If I was a longer-term investor, I would say a stop would go underneath this pullback low that we had seen just this month. So, let's go back to the daily timeframe and say, if you were an investor, and you're looking for momentum to come into it above 136.49, then your stop would go underneath this level right here.
But my objective is not to come up with these fantastic outrageous price targets, but instead to say, let the message of the stock tell us what to do. In other words, as the stock- if it can break higher, then if your initial stop is under here, and then it runs up and pulls back again, then you raise your stop under this higher low and then under that higher low. And let this message of the market tell you when to get out.
So, with Disney, here's what I'm looking for, I'm looking for to get above 136.48. For a swing trader, we'll set our stop underneath what other higher low we can find that is relevant, maybe near 135. We'll know only after we get the breakout. But one thing we don't want to do is chase it. If it runs past here, let other people chase it, let it pull back and then get involved with a stop underneath the higher low.
Okay, now, for our second stock, we're going to take a look at Walmart. We're starting with a monthly chart of Walmart. Each one of these candles represents one month of trading, you can see this goes back to 2010. And the stock is consolidating up above a prior band of resistance which would become support. It does pay 2.2% dividend. That's not really huge, but it is important to know that you can get paid a dividend while you wait as the stock is consolidating underneath an all-time high.
Let's zoom in a little bit further in particular on this action, because that's where it gets interesting on the weekly timeframe. Here's that area. And I'm just going to clear that off. So, we can see it with a little bit more clarity. On here, again, on this weekly timeframe, I have a 20-, 30- and 40-Week Moving Average, that means a 100-Day, 150- and 200-Day. Notice that the slope of those moving averages are all rising indicating the longer-term trends are higher.
Now, what we've seen recently is we had this big run in 2017. And then the stock pulled back down to about 82-ish, I guess. 81 and change then it ran up to 105, 106. It pulled back to 86. So, what does that tell us? Well, we had a lower high, but we had a higher low, so the range is tightening in here. And we could draw a trend line off of that. We could also draw a trend line off these lows. As the stock rallied off that 83, 84 level it ran back up to 104. And then it pulled back. This time as it pulled back, the buyers once again got more aggressive price wise. They weren't waiting for 85 to buy the stock. Instead, they took back control at 95, which was the location of the 200-Day Moving Average right in here.
So, what happened again was the stock rallied back up to that 104-ish level. As it got to 104 in that trendline, it backed off once again. This time, however, the buyers regain control at another higher level at 98. So, what we see here and the reason I'm pointing these higher lows out is the buyers didn't wait for 84. They didn't wait for 86. They didn't wait for 95. They instead gained control at $98 a share. They're getting impatient. They're building this position above these rising moving averages which appear to be holding a support and they're getting more aggressive price wise. They're not waiting for the pullback. There's a more urgent sense to this buying in terms of price.
What we also notice is the distance between the tests in here, the time spent. And you can see that each test is getting successively shorter. That means not only are we getting more aggressive price wise, but we're getting more urgency time wise. A lot of people might look at this and say, well, that's an A sending triangle. Or some people might say it's a complex cup and handle. The point isn't just to necessarily memorize patterns. But to understand the psychology of what's actually happening. It's supply and demand, the buyers are getting more aggressive.
For every buyer, there's a seller, that's stock market 101, but the urgency and the aggressiveness of the buyers in here is telling us let's keep a careful eye on Walmart because it's looking like it's getting ready to break higher. And if it can break beyond here, then we can take the height of the pattern, which we could approximate and let's just be conservative and call it 85 up to 105. Let's call that 20 points. So, if it can break beyond here, what we would be looking for is a move up to about 125.
Now, what is break above here? Let's take a look at the daily timeframe. Now, we're getting a little bit more clarity. And here's our 20-Day Moving Average, which is rising, the 50-Day Moving Average is rising, our year to date volume weighted average price is rising. We just seen this event right here a week and a half ago. And that was the earnings report. You can see the stock rallied on the earnings report but fell short of this little peak right here. So, this little peek right here, let's take a look at that together. The number on here is 104.15. That was the prior high.
So, what we're looking at now in a 30-minute timeframe, here's the rising 5-Day Moving Average. We have the volume weighted average price from that event. That event is the earnings report. So, it gapped up, it pullback and now, it seems comfortably above it. What I want to do for this stock in order to see it gain the momentum that tells me it has the ability to run up towards that 125 level is to buy it above that recent high. If it can break back above this peak right here at 104.15, I want to be an owner of this stock with a stop for an investor I think just under here.
So, if you're an investor, your stop would go at about $98.80 per share, giving us about six points of risk for 20 points of upside, that's a good risk reward. So, if you're a swing trader, then you may be going to look forward to do something- swing trading, you want more precision in terms of your entry, because you want to keep that risk lower. So, we'd like to maybe set our stop under about 102. But I think for a longer-term trader, this is the easy place to set a stop. Not only is it below this higher low with a rising 50-Day Moving Average, but it would also be below the year to date volume weighted average price. So, if it were to break beyond this 104.15 level, and then breakdown, it would tell me that was a failure, and I would no longer want to be involved in this stock.
Okay, so those are our trades. We have two of them. They're both blue chip names, part of the Dow 30. And they are setting up, so it looks like we have time to prepare our trade, understand what your timeframe is and set your stop accordingly. Because risk management is always job number one. The way I look at these trades right now, Walmart, we're looking for it to move above that recent high of 104.15. If it can do that, we would set our stop at about $98.80 per share. That's the most recent relevant higher low, which is above that rising 5-Day Moving Average in the year to date VWAP. And it looks like from a measured move perspective, the stock could get going up towards 125 plus. And again, the key is not just to look for the upside target, but to manage risk along the way.
Our second trade is Walt Disney, and we want to buy that above that most recent little earnings high, which was at 136.48. If we can do that, the stock looks like what's going to need about six points risk down to about 130.25. If I can do that, I'm looking for this stock to move above 150. 150 doesn't sound all that exciting for the amount of risk we're looking at. However, that's a minimum upside objective. Don't be so focused on upside objectives. When a stock's at a new all-time high, we really don't know where it has the potential to go. Our job then becomes to raise our stop up underneath the recent relevant higher low for your timeframe.
Hope that was helpful and you can make some money with these ideas. Thanks for tuning in.