Trade Best Buy Chart's 'Golden Cross'

Best Buy (BBY) is a major retailer of durable goods and electronic products, from refrigerators to handheld devices. The stock has a gain of 32.8% year to date, and is in bull market territory, 59.7% above its Jan. 15 low of $24.97.

While this is a great short-term performance, the retailer has had a volatile ride for more than 10 years. The stock set its all-time high of $57.98 in April 2006, well before the crash of 2008. The stock set its multiyear low of $10.91 in December 2012, well after the market indices bottomed in March 2009.

The daily and weekly charts tell the short-term and longer-term stories and how to trade shares of Best Buy now.

Best Buy is expected to report third-quarter earnings of 47 cents a share before the opening bell on Thursday. There's a tug-of-war between analysts of the stock, as Evercore recently downgraded the stock to sell, while Virtus Investment Partners disagrees.

Let's see what the charts say.

The daily chart features a "golden cross," set on July 29, where the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices were likely ahead. This is shown in the daily chart below.

The weekly chart shows a red line through the price bars, marking the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average, the "reversion to the mean."

The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicate overbought and readings below 20.00 indicate oversold.

A negative weekly chart shows the stock below its key weekly moving average, with weekly momentum declining below 80.00 in a trend toward 20.00. A positive weekly chart shows the stock above its key weekly moving average, with weekly momentum rising above 20.00 in a trend towards 80.00.

Here's the daily chart for Best Buy.

Courtesy of MetaStock Xenith

Best Buy closed Tuesday at $39.88, up 32.8% year to date. It is in bull market territory, 59.7% above its Jan. 15 close of $24.97.

The stock has been above a "golden cross" since July 29, when the 50-day simple moving average rose above the 200-day simple moving average, indicating that rising prices were ahead. The stock closed July 29 at $33.60. On Aug. 23, the stock offered a better-than-expected earnings outlook and the stock popped higher, and set its Aug. 24 high of $40.58.

The stock is approaching its Aug. 24 high going into Thursday's earnings report. Note the downside risks on a negative reaction to earnings. First is the price gap to the stock's Aug. 12 high of $35.46. Second is the price gap to the Aug. 22 high of $33.60. Third is the 200-day simple moving average of $33.74.

Here's the weekly chart for Best Buy.

Courtesy of MetaStock Xenith

The horizontal lines on the weekly chart for Best Buy are the Fibonacci retracement levels of the decline from $57.98, set in April 2006, down to the December 2012 low of $10.91.

That's a volatility rollercoaster slide of 81.2%.

The key takeaway from this analysis is that the huge rally from the December 2012 low has failed three times at or just above the 61.8% retracement of $40.02, which the stock is just below today. This key level was tested between the weeks of Oct. 18, 2013, and Jan. 3, 2014, when the high was $43.51, set during the week of Nov. 15, 2013. The second attempt for a technical breakout was in March 2015. The third attempt has been underway since the week of Aug. 26.

Today, the weekly chart for Best Buy is neutral, with the stock above its key weekly moving average of $38.52, and well above its 200-week simple moving average of $31.74, last tested during the week of July 1, when the average was $29.52. The weekly momentum reading is projected to slip to 78.24 this week, down from 78.47 on Nov. 11.

Investors looking to buy Best Buy should do so on weakness to $36.93, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should consider selling strength to $49.75, which is a key level on technical charts until the end of 2016.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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