Bloomberg

Best Buy  (BBY - Get Report)  was trading at $65.60 Thursday morning after it beat analysts' earnings estimates before the open. The stock was briefly  above its 200-day simple moving average at $68.21 premarket, but this key moving average quickly failed to hold. With the weekly chart negative, avoid the stock until it falls to its semiannual value level at $60.19. 

 

At Thursday's open, Best Buy is trading as low as $65.38, still up 23.5% year to date and up a bull market 37% since setting its Dec. 24 low of $47.72. The stock is also in bear market territory, 22.5% below its all-time high of $84.37 set on Aug 22. Longer term, Best Buy is consolidating a 2018 bear market. In 2018, the stock declined 43% from its all-time intraday high of $84.37 set on Aug. 22 to its Dec. 24 low of $47.72.

The retailer is reasonably priced with a P/E ratio of 13.00 and a dividend yield of 2.86%, according to Macrotrends. 

TheStreet.com indicates that the company's tariff remarks caused the stock's opening weakness. Earnings were stronger-than-expected, and guidance was confirmed. Demand for consumer electronics was solid as was their tech support service.

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The Daily Chart for Best Buy

Courtesy of Refinitiv XENITH

The daily chart for Best Buy shows the bear market decline of 43% from its all-time intraday high of $84.37 set on Aug. 22 to its Dec. 24 low of $47.72. This bear market is being consolidated in 2019, thanks in part to a positive reaction to earnings released on Feb. 27. Note the price gap higher on that day. Note that the stock failed to hold its 200-day simple moving average at $68.31 at Thursday's open.

The stock closed Dec. 31 at $52.96, which was an important input to my proprietary analytics. The annual value level remains below the chart at $46.20. The semiannual value level at $60.19 is where the Feb. 27 price gap began.

The negative reaction to earnings could cause weakness to "fill the gap" to that level. The close of $71.06 on March 29 was an input into my analytics and the second quarterly risky level is $84.58. The close of $74.41 on April 30 was also an input and the monthly value level for May is $57.11. The $74.35 level is a risky level for this week.

The Weekly Chart for Best Buy

Courtesy of Refinitiv XENITH

The weekly chart for Best Buy is negative with the stock below its five-week modified moving average of $70.10 and is above the 200-week simple moving average or "reversion to the mean" at $52.53 last tested during the week of Dec. 28 when the average was $49.30. The 12x3x3 weekly slow stochastic reading is projected to fall to 71.10 this week down from 82.84 on May 17, now below the overbought threshold of 80.00. At the Dec. 24 low this reading was 7.43 well below 10.00 as a stock "too cheap to ignore."

Trading Strategy: Buy weakness to the semiannual and monthly value levels at $60.19 and $57.11, respectively, and reduce holdings on strength to the 50-day simple moving at $71.89.

How to use my value levels and risky levels:

Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.