The opening high was $121.22, and my call is to book profit on strength to its quarterly risky level at $123.11. Before the earnings report, the technicals were optimistic, with a golden cross on the daily chart and a positive weekly chart.
Lowe's beat earnings-per-share estimates but missed on revenue. Investors ignored the mixed report and applauded the boost to full-year 2019 guidance. Here's the analysis of the earnings report in TheStreet.com.
The stock closed Tuesday at $113.40, up 23% year to date and in bull-market territory up 32% from its Dec. 24 low of $85.90.
The stock set its all-time intraday high of $121.22 today. Lowe's is slightly overvalued fundamentally, with a p/e multiple above 22 and a dividend yield of 1.9%, according to Macrotrends.
The Daily Chart for Lowe's
Courtesy of Refinitiv XENITH
The daily chart for Lowe's shows the stock above a golden cross, with the 50-day simple moving average above the 200-day simple moving average, which led the stock higher. The close of $92.36 on Dec. 31 was a major input to my proprietary analytics, and the annual pivot remains at $109.16 as a value level. The annual level was a magnet between Feb. 27 and Oct. 30, providing share-price stability. The close of $100.91 on June 28 was an input to my analytics, and a semiannual pivot at $107.82 is a value level that provided stability between July 15 and Oct. 10. The close of $109.96 on Sept. 30 was another input to my analytics and its fourth-quarter risky level is $123.11, which is the upside price target. The close of $111.61 on Oct. 31 was an input that resulted in a monthly value level at $109.04.
The Weekly Chart for Lowe's
Courtesy of Refinitiv XENITH
The weekly chart for Lowe's is positive but overbought, with the stock above its five-week modified moving average at $113.63. The stock is well above its 200-week simple moving average, or reversion to the mean, at $88.78. The 12x3x3 weekly slow stochastic reading is projected to end this week rising to 88.04 from 85.56 on Nov. 15. This reading is a week away from rising above 90, which would make the stock an inflating parabolic bubble. This in turn would limit the upside to its quarterly risky level at $123.11.
Trading Strategy: Buy weakness to the annual and semiannual value levels at $109.16 and $107.82, respectively, and reduce holdings on strength to the quarterly risky level at $123.11.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the past nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the close 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 Sept. 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.