AutoZone (AZO) - Get Report is a retailer of aftermarket auto parts and accessories, which are usually cheaper than the branded parts available at automobile dealerships. The stock is a play on momentum not on value as the company does not offer a dividend. My call is to countertrade earnings volatility. Buy weakness to its quarterly value level at $1,088.03 and reduce holdings on strength to its monthly risky level at $1,226.49, which would be an all-time intraday high.

AutoZone closed Friday at $1,159.37, up 38.3% year to date and in bull market territory 64.4% above its Oct. 17 low of $705.01. The stock set its all-time intraday high of $1,186.60 on July 16.

Analysts expect AutoZone to report earnings of $21.74 per share before the opening bell on Sept. 24. The stock has a slightly elevated P/E ratio of 19.46, according to Macrotrends. The stock has beaten earnings-per-share estimates in eight consecutive quarters. Last week Wedbush raised their price target to $1,240, which is above my monthly risky level. Wells Fargo raised its price target even higher, to $1,275.

The company has been in expansion mode, building new stores as more older vehicles require repairs. With expansion comes increased costs of technology and payroll. Guidance will be important, given flooding weather and the trade war with China.

The Daily Chart for AutoZone

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Courtesy of Refinitiv XENITH

The daily chart for AutoZone shows that the stock has been above a "golden cross" since July 19, 2018 when the 50-day simple moving average rose above its 200-day simple moving average, indicating that higher prices lie ahead. The stock is now above its 50-day and 200-day SMAs at $1,121.49 and $1,009.42, respectively. The close of $838.34 on Dec. 31 was an important input into my proprietary analytics and its annual pivot is $993.23, which was a magnet and buy level between March 21 and May 21, when the stock reacted positively to its latest earnings beat. Its semiannual value level is $958.78, with annual and quarterly pivots at $993.23 and $1,088.03, respectively, and a monthly risky level at $1,226.49.

The Weekly Chart for AutoZone

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Courtesy of Refinitiv XENITH

The weekly chart for AutoZone is positive with the stock above its five-week modified moving average of $1,131.46. The stock is well above its 200-week simple moving average or "reversion to the mean" at $775.02. The 12x3x3 weekly slow stochastic reading is projected to rise to 68.37 this week up from 62.53 on Sept. 20. At the July 16 high, this reading was 90.69 above the 90.00 threshold as an "inflating parabolic bubble" and from the July 16 high of $1,186.60 to the Aug. 13 low of $1,032.60 the stock slumped by 12.9% as this bubble popped.

Trading Strategy: Buy weakness to the quarterly and annual pivots at $1,088.03 and $993.23, respectively, and reduce holdings on strength to this month's risky level at $1,226.49.

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 annual level remains in play.

The weekly level changes each week. The monthly level changes at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June.

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.