Home improvement giant Lowe's Companies (LOW - Get Report) reports earnings before the opening bell on Wed., Aug. 21 with the stock vulnerable to missing earnings estimates. The company has missed earnings-per-share estimates in five of its last ten quarters. The stock is below four risky levels from my proprietary analytics and the weekly chart is negative. My call is to buy the stock on weakness to its "reversion to the mean" at $86.19 which is its 200-week simple moving average. Lowe's has been above its technical "reversion to the mean" since the week of Nov. 11, 2011.
The stock closed Monday at $95.05 up 2.9% year to date and 12.2% above its Nov. 20 low of $84.75. The stock is 19.6% below its all-time intraday high of $118.23 set on April 17. Lowe's has a market-neutral fundamental profile with a P/E ratio of 18.31 and dividend yield of 2.34%, according to Macrotrends.
Analysts expect Lowe's to earn $1.99 to $2.03 per share when they report before the open Wed., Aug. 21. A year ago, Lowe's announced it was closing stores and cutting inventories so guidance on this front will be a key. Lowe's is now focusing on pro customers with a refurbished website. The home improvement retailer faces increased supply chain costs including transportation and direct deliveries to customers.
Competitor Home Depot (HD - Get Report) reported before the opening bell Tues., Aug 20 and beat earnings estimates but warned of lower lumber prices and potential negative effects of recently announced tariffs. Will Lowe's feel the same on these issues?
The Daily Chart for Lowe's
Courtesy of Refinitiv XENITH
The daily chart for Lowe's shows the extreme downside volatility following a negative reaction to earnings released on May 22. The stock is below its 50-day and 200-day simple moving averages converged at $100.60 and $100.37, respectively. The stock has been below its annual pivot at $109.16 since May 21, which was a warning for last quarter's earnings results. The June 28 close of $100.91 was an important input to my proprietary analytics and strength to $108.31 on July 15 was a failed test of its semiannual risky level at $107.82. Its quarterly risky level is $116.84. Based on its July 31 close, the risky level for August is $108.57.
The Weekly Chart for Lowe's
Courtesy of Refinitiv XENITH
The weekly chart for Lowe's is negative with the stock below its five-week modified moving average at $99.33. The stock is above its 200-week simple moving average or "reversion to the mean" at $86.19, which is my buy on weakness level. The 12x3x3 weekly slow stochastic reading is projected to end this week sliding to 35.99 down from 41.15 on Aug. 16.
Trading Strategy: Buy weakness to the 200-week simple moving average at $86.19 and reduce holdings on strength to semiannual, monthly and annual risky levels at $107.82, $108.57 and $109.16, respectively.
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.