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Why Wal-Mart stock’s record plunge is bad news for the broader market

The selloff left it below an important technical level

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A view of a Wal-Mart September 25, 2014 in Washington, D.C.

The shares of the largest retailer on the planet just tanked and that may be terrible news for stocks overall, according to research firm Asbury Research.

Wal-Mart Stores Inc. WMT, -1.17% nose-dived $6.70, or 10%, Wednesday, shaving about 45 points from the Dow Jones Industrial Average DJIA, +1.28% as the company slashed its growth outlook and forged a plan to bolster its growth.

FactSet

Wednesday’s harrowing slide in Wal-Mart shares marks the company’s largest-ever one-day price decline, and biggest percentage slide since Jan. 8, 1988, and erased around $21.5 billion in market capitalization from the retailer. But the plunge may also pressure the broader stock market, notes John Kosar, chief market strategist at Asbury.

That is because Wal-Mart’s stock rocketed below a key support level in the range of around $63.85 to $62.63. That downdraft in turn could pave the way for the stock to sink below another key level of between $57.90 a share and $57.18 a share, as Asbury’s chart shows:

Why is this significant? Because Wal-Mart is a key component of both the Dow and the S&P 500. Blue-chips were hamstrung by losses in Wal-Mart, which led decliners on Tuesday. It also dragged the S&P lower.

But Kosar also notes that there has been a positive correlation between performance in the S&P 500 SPX, +1.49% which hit its highest level in June, as the table below illustrates:

Asbury Research

“[Wal-Mart] is an influential stock that has moved up and down with the Dow and when we break through a major support level like that’s significant,” Kosar told MarketWatch.

Kosar cautioned that technical levels aren’t the only thing that his firm, which provides technical research to portfolio managers and hedge funds, but said that the slide in bellwether shares like Wal-Mart are important to watch.

“This particular stock carries a lot of weight,” he said.

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