Kroger (KR) - Get Report is a major supermarket chain preparing to report earnings before the opening bell on Thurs., Sept. 12. Recent strength has the stock trading around its 200-day simple moving average at $25.39 under a "death cross." My call is to reduce holdings on strength to its quarterly risky level at $26.58. The weekly chart is positive, and my second sell level is its "reversion to the mean" at $29.25.
The stock closed Tuesday at $25.82, down 6.1% year to date and in correction territory 19.3% below its 52-week high of $31.98 set on Nov. 12. The stock is also in bull market territory, 24.7% above its 2019 low of $20.70 set on July 23.
Analysts expect Kroger to earn 41 cents to 43 cents a share when it reports before the open on Sept. 12. The stock is reasonably priced with a P/E ratio of 12.05 and a dividend yield of 2.54%, according to Macrotrends. I am not a fan of plant-based food, but Kroger is making a business bet in 60 stores, which is a small sample size. The grocery industry has been modernizing their product offerings such as; digital coupons, ordering online, and at store pick-up. These initiatives are within the framework of stiff competition. The industry headwinds include volatile commodities prices, higher freight costs and increasing wages.
Daily Chart for Kroger
Courtesy of Refinitiv XENITH
Kroger has been below a "death cross" since Feb. 20, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices lie ahead. The stock could have been sold at its 200-day SMA at 28.69 on March 6, just before the price gap lower on a negative reaction to earnings released on March 7. This tracked the stock to its 2019 low of $20.70 set on July 23. Since then, the stock has been on an upswing. Its semiannual and monthly value levels are $22.25 and $21.63, respectively, with its quarterly risky level at $26.58.
Weekly Chart for Kroger
Courtesy of Refinitiv XENITH
The weekly chart for Kroger is positive with the stock above its five-week modified moving average of $23.70. The stock below its 200-week simple moving average, or its "reversion to the mean," at $29.25 has been a barrier on strength since the week of March 3, 2017. The last test was at $31.69 during the week of Nov. 16, 2018. The 12x3x3 weekly slow stochastic reading is projected to rise to 64.49 this week up from 54.76 on Sept. 6. A positive reaction to earnings targets the 200-week SMA.
Trading Strategy: Buy Kroger on weakness to the semiannual and monthly value levels at $22.25 and $21.63, respectively, and reduce holdings on strength to the quarterly risky level at $26.58.
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 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 now.
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.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.