Department store Kohl's (KSS) reports quarterly results before the opening bell on Nov. 19 with the stock above its annual pivot at $55.45. Fundamentally, the stock is relatively cheap with a p/e multiple of 10.2 and a dividend yield of 4.66%, according to Macrotrends.
My call is to buy Kohl's on weakness to its annual pivot at $55.45 as its weekly chart is positive.
The stock closed last week at $59.08, down 11% year to date and in bear-market territory 22% below its 2019 high of $75.91 set on April 23. Kohl's set its all-time intraday high of $83.28 on Nov. 12, 2018. The Menomenee Falls, Wis., retailer has been in recovery mode and in bull-market territory, up 36% from its Aug. 15 low of $43.33.
Kohl's offers brand-named apparel, shoes, accessories, and home and beauty products at affordable prices. The retailer benefits from its relationship with Amazon.com (AMZN) as consumers who buy online using Amazon can drop off returns at Kohl's stores. Since July, this return program has been expanded to all 1,150 stores across the country.
Analysts expect Kohl's earned 85 cents to 88 cents a share when it reports on Tuesday. The company beat estimates in three of the past four quarters, but back on May 21 it missed earnings-per-share estimates, citing difficulty navigating increasing tariffs.
The Daily Chart for Kohl's
Courtesy of Refinitiv XENITH
The daily chart for Kohl's shows the stock has been below a "death cross" since on Dec. 24 when the 50-day simple moving average fell below the 200-day simple moving average to indicate that lower prices would follow. The trading strategy when this occurs the strategy is to sell strength to the 200-day SMA, and the chart clearly shows several opportunities to sell at $70.00 and above between Jan. 9 and May 1. The close of $66.34 on Dec. 31 was the major input to my proprietary analytics and the annual pivot remains at $55.45. The close of $47.55 on June 28 was input to my analytics and a semiannual value level is $40.09. The close of $49.66 on Sep. 30 was another input to my analytics and its fourth quarter risky level is $76.39. The close of $51.26 on Oct. 31 was an input that resulted in a monthly value level for November at $41.37. The stock is above its 200-day SMA at $56.74 which is a positive.
The Weekly Chart for Kohl's
Courtesy of Refinitiv XENITH
The weekly chart for Kohl's is positive but overbought with the stock above its five-week modified moving average at $54.42. The stock is also above its 200-week simple moving average or "reversion to the mean" at $53.16. The 12x3x3 weekly slow stochastic reading begins the week at 85.52 up from 80.22 on Nov. 15. During the week of June 28 this reading was 8.09 below the 10.00 threshold which made the stock technically "too cheap to ignore" which solidified the gain of 36.3% since Aug. 15. If the reading rises above 90 post-earnings, the profile becomes an "inflating parabolic bubble."
The horizontal lines from bottom to top are the semiannual, monthly value levels, the annual pivot and the quarterly risky level.
Trading Strategy: Buying weakness to its annual pivot at $55.45 and reduce holdings on strength to its quarterly risky level at $76.39.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.
The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.
The quarterly level changes after the end of each quarter so the close on Sep. 30 established the level for the fourth quarter.
The close on Oct. 31 established the monthly level for November.
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.