The stock traded lower at Friday's open setting a new 52-week low of $52.41. Additional downside was not unexpected given the “death cross” on its daily chart and negative weekly chart.
The stock set its all-time intraday high of $173.71 back on March 21, 2019. The company has missed earnings-per-share estimates in seven of the last 10 quarters which was a huge warning pre-earnings.
Shares of Mayfair traded as low as $52.41 on Friday. This puts the stock down 42% year to date and in bear market territory 69.8% below the all-time high.
Before this bear market the stock had two strong rallies and one other bear market.
From a low of $60.53 set during the week of May 4, 2018, to the high of $151.20 set during the week of Sept. 14, 2018, the stock gained nearly 150%. From this high to a low of $76.60 set during the week of Nov. 23, 2018, the stock plunged 49%. From this low the stock gained 125% to its all-time high of $173.71 set on March 21, 2019.
Traders and investors who know how to read daily and weekly charts can capture this volatility. In my opinion there is no such thing as a “buy and hold” forever stock.
The Daily Chart for Wayfair
Courtesy of Refinitiv XENITH
The daily chart for Wayfair clearly shows the bear market decline from the March 2019 high. Accelerating the downside was a “death cross" that formed on Sept. 4, 2019.
This sell signal occurs when the 50-day simple moving average falls below the 200-day simple moving average.
When under a “death cross” the strategy is to sell strength to the 200-day simple moving average. This was doable on Sept. 12 when the average was 132.48.
The stock closed Dec. 31 at $90.37 which provided and important input to my proprietary analytics. The stock was below its annual pivot at $77.65 going into the earnings report which was a warning.
The stock is well below its semiannual and quarterly risky levels at $122.78 and $144.47, respectively.
The close on Jan. 31 at $93.70 was an input to my analytics and its pivot for February is $66.42 which failed to hold on today’s earning report. Next week there will be a new monthly level for March.
The Weekly Chart for Wayfair
Courtesy of Refinitiv XENITH
The weekly chart for Wayfair is negative with the stock below its five-week modified moving average at $85.10.
The stock has been below its 200-week simple moving average or “reversion to the mean” at $85.47 since the week of Feb.14 which was another bearish warning
The 12x3x3 weekly slow stochastic reading is projected to fall to 31.12 this week down from 41.73 on Feb.21.
At the March 2019 high this reading was above 90.00 putting the stock in an “inflating parabolic bubble” formation. This was a perfect market-timing signal to sell the stock as it was setting its all-time high.
The horizontal line is my projected value level for the month of March at $43.76.
Trading Strategy: Buy weakness to the monthly value level at $43.76 and reduce holdings on strength to its annual pivot at $77.65.
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 February were established based upon the January 31 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.