RH (RH) - Get Report , formally known as Restoration Hardware, reports quarterly earnings after the close on Tues., Sept. 10, with positive daily and weekly charts. Despite recent strength, my call is to reduce holdings on strength toward its all-time intraday high of $164.49 set on June 12, 2018. Quarterly and weekly pivots at $152 and $156.03 should be magnets to prevent a new high.

The stock closed Monday at $153.51 up 28.1% year to date and in bull market territory 82.5% above its 2019 low of $84.11 set on May 31. The stock traded to a new 2019 high of $158.35 in morning trading today, Sept. 10. At issue for the bulls is that the stock set its all-time intraday high of $164.49 during the week of June 15, 2016 so the stock is consolidating a bear market decline of 48% from this high to its May 31 low of $84.11.

Analysts expect RH to report earnings of $2.70 to $2.75 per share when it reports after the close on Tues., Sept. 10. The home furnishing company offers furniture, lighting, and products that allows homeowners to decorate their homes to their desired styles. At issue now is that the housing market has been weak despite lower mortgage rates. It seems like the retailer is opening luxury designed stores in cities where home sales are weakening. The retailer indicates that it is immune from any negative impacts from the new rounds of tariffs. Given weakening global economies will this optimism hold up? Let's see what the charts indicate!

The Daily Chart for RH

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Courtesy of Refinitiv XENITH

The daily chart for RH shows the stock above a "golden cross" confirmed on Aug. 16 when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices will follow. This signal followed the stock to its pre-earnings high set on Sept. 10 vs. the all-time high of $164.49 set on June 12, 2018. The stock traded above its quarterly and weekly pivots at $152.48 and $156.03, respectively, this morning. The stock gapped lower on March 29, following a negative reaction to earnings reported on March 28. This was followed by a price gap higher on June 13 on a positive reaction to earnings released on June 12. The stock is above its annual pivot at $140.68 and its monthly value level at $130.35.

The Weekly Chart for RH

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Courtesy of Refinitiv XENITH

The weekly chart for RH is positive but overbought with the stock above its five-week modified moving average of $139.93. The stock is well above its 200-week simple moving average or "reversion to the mean" at $81.00. The 12x3x3 weekly slow stochastic reading is projected to rise to 90.26 this week up from 89.35 on Sept. 6. The reading above 90.00 makes the stock an "inflating parabolic bubble." This is opposite of the reading of 6.80 during the week of the May 31 low, which made the stock "too cheap to ignore," as this reading was below the 10.00 threshold.

Trading Strategy: Buy weakness to its annual pivot at $140.68 and reduce holdings on strength toward its all-time intraday high of $164.49.

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.

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.