Kroger Beats on Earnings - Buy the Stock on Weakness

Buy Kroger on weakness to its monthly value level at $30.45 and reduce holdings on strength to its annual risky level at $44.37.
Author:
Publish date:

Kroger  (KR) - Get Report, the major supermarket chain, beat earnings estimates on Thursday. 

The stock had a cautious open, held its monthly value level at $30.45. then surged to a new 52-week high above $33. 

The stock is above a “golden cross” on its daily chart and its weekly chart is positive, which favored this upside move. 

My call is to buy Kroger on weakness to its monthly value level at $30.45.

Kroger reported improving trends in its grocery business. It beat earnings-per-share estimates and matched on revenue. The company touted improving trends in its supermarkets. Here’s the earnings story from TheStreet.

At $33.18, shares of Kroger are up 14.5% year to date and in bull market territory 60.3% above their 52-week low of $20.20 set on July 23, 2019.

Longer-term the stock is consolidating a bear market decline of 53% from its all-time intraday high of $42.75 set during the week of Jan, 1, 2016 to the low of $19.69 set during the week of Oct. 6, 2017.

The stock is reasonably priced with a price-to-earnings multiple of 13.90 and a dividend yield of 2.18%, according to Macrotrends.

The Daily Chart for Kroger

Daily Chart For Kroger

Daily Chart For Kroger

Courtesy of Refinitiv XENITH

Kroger has been above a “golden cross” since Oct. 31 when the 50-day simple moving average rose above its 200-day simple moving average indicating that higher prices lie ahead. The stock was a buy at its 200-day SMA at $24.73 on Nov. 1.

The stock is above its monthly, weekly and quarterly value levels at $30.45, $27.82 and $25.68, respectively. This indicates upside potential to its annual risky level at $44.37 later in the year. The $30.45 level held at the open today.

The Weekly Chart for Kroger

Weekly Chart For Kroger

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 $29.31. The stock moved above its 200-week simple moving average or its “reversion to the mean” at $27.87 this week.

The 12x3x3 weekly slow stochastic reading is projected to rise to 67.98 this week up from 64.68 on Feb. 28.

Trading Strategy: Buy Kroger on weakness to its monthly value level at $30.45 and reduce holdings on strength to its annual risky level at $44.37.

How to use my value levels and risky levels:

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

Monthly levels for March were established based upon the February 28 closes.

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.