Dick’s Sporting Goods Is a Buy After Earnings Report - With Limited Upside

Buy Dick's Sporting Goods on weakness to its weekly value level at $35.18 and reduce holdings on strength to the 200-day and 200-week simple moving averages at $39.77 and $39.95.
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Dick’s Sporting Goods  (DKS) - Get Report on Tuesday reported better-than-expected earnings per share with increased same-store sales.

The stock traded up as much as 14% at $39.14, staying shy of its 200-day simple moving average at $39.77.  It has pulled back and at last check was trading up 0.5% at $34.65.

The stock has a negative weekly chart, with the stock below its 200-week simple moving average, which is its technical reversion to the mean at $39.95. 

My call is to buy the stock on weakness to its weekly value level at $35.18 and reduce holdings at these two moving averages.

The Coraopolis, Pa., retailer of sporting goods including apparel, footwear and accessories said it would no longer sell firearms, including those used in hunting. Here’s the key elements of the earnings report as compiled by TheStreet.com

The stock is reasonably priced with a p/e multiple of 10 and a dividend yield of 3.14%, according to Macrotrends.

The stock opened Tuesday at $38.17, down 23% year to date and in bear-market territory 23% below its 52-week high of $49.80 set on Dec. 31, 2019. 

The stock is also in bull-market territory up 29% from its Dec. 24, 2018, low of $29.69.

Longer term, the stock is consolidating a bear-market decline of 62% from its all-time intraday high of $62.88, set during the week of Nov. 18, 2016, to the low of $23.88 set during the week of Nov. 3, 2017.

This volatility is why investors need to read the daily and weekly charts for all stocks they are considering buying. 

Charts are road maps showing where a stock has been, and my proprietary analytics show the upside and downside of where the stock can trade in the future.

The daily chart for Dick’s Sporting Goods

Daily Chart For Dick's Sporting Goods

Daily Chart For Dick's Sporting Goods

Courtesy of Refinitiv XENITH

The daily chart for Dick’s shows that the stock had a volatile ride over the year between its Dec. 24, 2018, low of $29.69 and its Dec. 31, 2019, high of $49.80. 

The crisscrossing volatility makes golden-cross and death-cross formations not worth following.

The huge price gap higher on Nov. 26 was caused by a positive reaction to earnings. The stock turned on a dime on Dec. 31. Then came what I call the crash of 2020 for the stock.

The close of $49.49 on Dec. 31 was an important input to my analytics. Its annual risky level for 2020 is above the chart at $53.71. Its quarterly pivot at $48.64 failed on Jan. 17. Its semiannual pivot at $46,16 failed to hold on Feb. 7.

The close of $36.41 on Feb. 28 was another input to my analytics and its monthly risky level for March is $46.10. This week’s pivot is $35.18.

The weekly chart for Dick’s Sporting Goods

Weekly Chart For Dick's Sporting Goods

Weekly Chart For Dick's Sporting Goods

Courtesy of Refinitiv XENITH

The weekly chart for Dick’s is negative, with the stock below its five-week modified moving average of $40.32. 

The stock is also below its 200-week simple moving average, or reversion to the mean, at $39.95, which failed to hold during the week of Feb. 26.

The 12x3x3 weekly slow stochastic reading is projected to fall to 24.67 this week from 30.32 on March 6. 

This reading was overbought, above the 80 threshold at the end of 2019.

Trading Strategy: Buy weakness to its weekly pivot at $35.18 and reduce holdings on strength to the 200-day and 200-week simple moving averages at $39.77 and $39.95, respectively.

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 Feb. 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.