Analysis: WMT DIS

Bob Lang and Chris Versace discuss their approach to the markets and Walmart (WMT) .

Bob breaks down what oversold means and Chris explains his thoughts on Disney (DIS) .

KATHERINE ROSS: Good morning, it's Wednesday, May 25. I'm Katherine Ross, and I'm joined by Chris
Versace and Bob Lang. Bob, what are you watching in the markets this morning?


BOB LANG: Well, I'm watching the volatility right here. And basically the market has been in a wide range
for the past several weeks. We've had some days where the markets have moved up and down more
than 2%. Volatility is elevated, about 30% right now, and I don't see that changing anytime soon.
We do have the Fed meeting minutes coming out tonight, or later this afternoon, that is. And we have
seen, for the past couple of meetings, the markets did get a little bit active and get volatile when the
release of those minutes came out. So, I'm watching volatility here, and seeing if we can break out of a
range to the upside or the downside.


KATHERINE ROSS: Now over the past couple of weeks, you've used the term oversold quite frequently.
What does that mean?


BOB LANG: So oversold basically says the stock is fairly washed out when it comes to buying or selling,
so selling on the downside. When the stock hits the certain levels, the relative strength is of say 30%,
stochastics are down below zero, some other momentum indicators will show you the same thing as well,
too.
So when the stock gets too oversold, there's a lot of, there's a school of thought out there that contrarians
will tend to look at that as a buying opportunity. And I will tell you right now is that oversold is not a buy
signal, and oversold can stay oversold and be oversold for quite a long period of time, and we've seen
stocks do that.
I think the important point here, when evaluating oversold or even overbought, is to see what is the overall
trend of the stock or the market. And if that overall trend is down, oversold may be an attempt for short
sellers to cover their positions, maybe buyers to step in for a short period of time to buy them a
resistance. So until you get some break of the trend, oversold does not mean buy.


KATHERINE ROSS: Chris, you downgraded Walmart yesterday. We've discussed Walmart as an
inflationary play before this quarter was even released. But even if Walmart was able to get back on track,
do you think that this quarter was enough to sour investors trust in the name?


CHRIS VERSACE: Yes, I do, and I say that because there were a couple of things already inside the
Walmart report that concerned us. Very aggressive guidance for the back half of the year, probably the
most aggressive in at least 20 years out of Walmart. And yet they had bloated inventories.
And as we've seen over the last several days as other retailers have reported, it's just not Walmart that
has bloated, or excessive, or near-record levels of inventories. It's a growing number of them, and to us,
that this really raises a big flag on the entire retail sector.
And I say that because consumers are feeling the pinch of higher prices for food, for energy, higher
borrowing costs, that, if the Fed continues on its March to tamp down inflation, were only going to get
higher. And it raises a real red flag about the consumer's ability to spend. So how are those companies
really going to work down those higher inventory levels if the consumers aren't buying as much?
It likely means far more aggressive use of discounting later in the year that's going to pressure margins.
And I think a great point capturing all of this was the results from Dick's Sporting Goods out this morning.
They're calling for a negative comp same store sales for the balance of the year.
Again, how do you work down record inventory levels when you're looking for that? It's just going to be a
lot of pain for retailers. That is really what prompted us to downgrade Walmart to a three. And with the
three, we're going to look to use some near-term strength to exit the position.


KATHERINE ROSS: And Bob, what kind of levels would you look for to exit Walmart?


BOB LANG: So I'm kind of looking at the 130 to 135 area here, and which recently held nicely on several
different occasions, as good support. It knifed through it last week pretty hard on some heavy volume. We
did come in to a long term support area about the 115, 117 area, and bounced off of that. We're
continuing to bounce up towards that 130 area, so I'll be looking up that 130 to 135 area where we can
probably reassess and see where we're going to go with the position.


KATHERINE ROSS: Chris, if a member still believes in the long term story of Disney. Should they take
some off the table, which could be a loss with the shares trading where they are, or just hold on?


CHRIS VERSACE: The answer to that question really depends on what the overall position size is. If
you've got a full position in Disney, and the markets are looking a little sketchy, let's say, just like we are
today, probably some more downside to go, it probably would make sense to lighten up. If, on the other
hand, you don't have a full position size, it could be time to nibble slowly and wade into the name. Again it
really hinges on what the long-term conviction is for any name that you're talking about.
And I certainly agree that over the long term, Disney is a high-quality company. It's got great businesses,
great franchises, and we are seeing a lot of firepower come back to it. The one business to watch in the
near term is going to be the expectations for the park business in the second half of the year.


KATHERINE ROSS: All right, members, thank you for tuning in. And please continue to send your
member questions into katherine.ross@thestreet.com, and we'll see you tomorrow.

Action Alerts PLUS is long WMT and DIS.