Collins began by inspecting the daily stock chart of Walmart, a long-standing Arkansas-based chain and the parent company of budding Amazon competitor Jet.com.
In the last five months, shares of Walmart have made a rounding bottom pattern, hitting two low points — known as a double bottom among technicians — in the week of May 7 and the week of May 29. Six weeks ago, shares headed higher, with Walmart’s stock settling at $89.77 a share as of Tuesday’s close.
To Collins, the trend looked like a “pattern within a pattern,” Cramer said. Walmart’s stock was already trading higher in a tight range, but since the start of July, it has rallied within an even tighter range. That created two floors of support — at $87 and $88 — in addition to the third floor of $82, where the stock bottomed in May.
“According to Collins, this is a great way to define your risk,” Cramer said. “If the stock goes below $87, roughly $3 bucks down from where it is, he’d become more cautious; if it breaks down below $82, he’d tell you to abandon the bull thesis and simply cut your losses.”
But based on Walmart’s latest rally and the Chande Trend Meter, a key indicator that distills a bunch of metrics into a single score, Collins said shares of Walmart are poised to rally.
In fact, if the stock surges past the $90.50 level, “he’s betting it’ll be smooth sailing all the way up to $103 bucks as it fills in the gap from the big late-February decline,” Cramer said.