Nordstrom (JWN - Get Report) is a luxury mall anchor that's been slumping badly so far in 2019. The retailer reports earnings after the close on Wed., Aug. 21, with the stock trading at a 10-year low. The stock is trading around its monthly pivot at $26.04 with its semiannual value level at $17.79. Fundamentally, the stock appears to be "too cheap to ignore," with a P/E ratio of 7.60 and dividend yield of 5.85%, according to Macrotrends. Investors willing to "catch a falling knife" should start a long position at the monthly pivot at $26.04 and be prepared to add to the position on weakness to its semiannual value level at $17.79.
The stock closed Tuesday at $25.15 down 46% year to date and in bear market territory 62.9% below its 52-week high of $67.76 set on Nov. 6. The stock set its all-time intraday high of $77.65 during the week of March 27, 2015, just as Amazon.com (AMZN - Get Report) began to steal market share with increasing online shopping.
Mall anchors Macy's (M - Get Report) is also trading near a 10-year low. J.C. Penney (JCP - Get Report) is trading below a buck a share and faces de-listing. Dillard's (DDS - Get Report) is under pressure but is holding up better than the other three major mall anchors.
Analysts expect Nordstrom to earn 79 cents per share when it reports results after the closing bell on Wed., Aug. 21. The retailer missed earnings estimates on May 21 and higher revenue is expected for the second-quarter results. The annual sales decline appears manageable at an expected 3.4%. The surprise could come from guidance as Nordstrom will be opening its first Manhattan flagship location in October, which should be positive for the 2019 holiday shopping season.
The Daily Chart for Nordstrom
Courtesy of Refinitiv XENITH
The daily chart for Nordstrom shows the stock below a "death cross" since Jan. 9 when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices lie ahead. The stock ended 2018 at $46.61 which was an important input to my proprietary analytics. The annual risky level remains at the top of the chart at $64.11. The close of $31.86 on June 28 was also an input to my analytics. A quarterly risky level is at $43.11 and a semiannual value level is $17.79. The July 31 close of $33.11 was an input to my analytics and its monthly pivot for August is $26.04.
The Weekly Chart for Nordstrom
Courtesy of Refinitiv XENITH
The weekly chart for Nordstrom is negative but oversold with the stock below its five-week modified moving average of $29.35. The stock is well below its 200-week simple moving average or "reversion to the mean" at $47.66. The 12x3x3 weekly slow stochastic reading is projected to slip to 11.36 this week down from 13.24 on Aug. 16. A reading below 10.00 would make the stock technically "too cheap to ignore."
Trading Strategy: Buy at the monthly pivot at $26.04 then add to the position on weakness to its semiannual value level at $17.79. Reduce holdings on strength to its quarterly risky level at $43.11.
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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 was changed at the end of each month, the latest on July 31. 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."