TJX Shares Rise After Tough Quarter - Here's the Trade

Buy TJX on weakness to its 200-week simple moving average at $45.86. Reduce on strength to its 200-day SMA and to risky levels.
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TJX Cos. TJX reported weaker-than-expected earnings but was encouraged by sales as stores reopen. 

The stock gapped higher at the open on Thursday but it stayed below its 200-day simple moving average at $55.68. 

TJX is also below monthly and semiannual risky levels at $56.21 and $57.40, respectively.

The Framingham, Mass., parent of discount retailers TJ Maxx, Home Goods and Marshalls indicated that it is managing through the effects of store closures due to the coronavirus pandemic. For more details read the coverage on TheSteet.com.

TJX opened Thursday at $53.60, down 12% year to date and in correction territory 18% below its all-time intraday high of $64.95 set on Feb. 28.

The stock is also in bull-market territory 64% above its March 23 low of $32.72.

TJX is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells this stock? Learn more now.

The stock is reasonably priced with a p/e multiple of 18.75 and a dividend yield of 1.83%, according to Macrotrends.

The Daily Chart for TJX

Daily Chart for TJX

Daily Chart for TJX

  Courtesy of Refinitiv XENITH

TJX had been above a golden cross from March 29, 2019, through March 11, 2020. 

This was followed by a death-cross formation confirmed on March 30. 

This occurred when the 50-day simple moving average fell below the 200-day simple moving average. Such a move indicates that lower prices will follow.

The all-time high of $64.95 on Feb. 26 was on the day of a positive reaction to earnings. 

This proved to be an opportunity to book profits with the stock just below its annual risky level at $65.08.

From this earnings report, the stock cascaded lower. 

The stock has been below its 200-day SMA since March 11 with the average now at $55.68.

The stock has also been below its semiannual pivot at $57.40, also since March 11.

This tracked the stock to its March 23 low of $32.72.

On the rebound the stock failed at its 50-day SMA between April 25 and May 15. 

Since then the stock rebounded in anticipation of positive earnings released this morning.

The stock is above a price-gap high with the gap to the May 20 high at $51.63.

Note that the stock is below its 200-day SMA at $55.68 and its monthly and semiannual risky levels at $56.21 and $57.40, respectively.

The Weekly Chart for TJX 

Weekly Chart for TJX

Weekly Chart for TJX

Courtesy of Refinitiv XENITH

The weekly chart for TJX is positive, with the stock above its five-week modified moving average of $49.53. 

The stock is also above its 200-week simple moving average, or reversion to the mean, at $45.86. 

This moving average was a magnet between the weeks of March 20 and May 15.

The 12x3x3 weekly slow stochastic reading is projected to rise to 47.89 this week from 45.09 on May 15.

Trading Strategy: Buy TJX on weakness to its 200-week simple moving average at $45.86. Reduce holdings on strength to its 200-day simple moving average at $55.68 and to monthly and semiannual risky levels at $56.21 and $57.40, respectively.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019 were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

The second quarter 2020 level was established based upon the March 31 close.

The monthly level for May was established based upon the April 30 close.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

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.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.