Lowe's Misses on Revenue and Fails to Hold Value Levels

Lowe's Companies, Inc. (LOW) reported mixed earnings results when it disclosed quarterly numbers on Feb. 26. The home improvement giant beat earnings per share (EPS) estimates but missed on revenue.

Lowe's shares set an all-time intraday high of $126.73 on Feb. 20 and then crashed on the disappointing results. The stock initially held its quarterly pivot at $118.25 on Feb. 26 but then broke lower the next day. Its semiannual pivot at $112.65 was a magnet on March 3 and March 4, but the stock then traded as low as $102.17 on March 8 – below all key levels.

Lowe's beat EPS expectations for the third consecutive quarter, and the stock is reasonably priced. Its P/E ratio is 18.82, and its dividend yield is 2.06%, according to Macrotrends.

The stock closed Friday, March 6, at $105.31, down 12.1% year to date and in correction territory at 16.9% below its all-time intraday high of $126.73 set on Feb. 20. Lowe's is still in bull market territory at 22.6% above its low of $85.90 posted on Dec. 24, 2018.

The daily chart for Lowe's

Daily chart showing the share price performance of Lowe's Companies, Inc. (LOW)

The daily chart for Lowe's shows the stock has had a volatile ride since its low posted on Dec. 24, 2018. Note that a false "death cross" followed by a false "golden cross" is a sign of volatility. A "golden cross" confirmed on Aug. 9 had some staying power. This buy signal occurred when the 50-day simple moving average rose above the 200-day simple moving average to lead the stock higher.

The close of $119.75 on Dec. 31 was a major input to my proprietary analytics. The stock has been below its annual risky level for 2020 at $135.92. The quarterly pivot at $118.25 was a magnet between Jan. 3 and Feb. 25 before it failed to hole following the earnings report released on Feb. 26. The semiannual pivot at $112.65 was a magnet between March 3 and March 4 before the stock slumped to $102.17 on March 6.

The close of $106.57 on Feb. 28 was another input to my analytics. The risky level for March is above the market at $121.65.

The weekly chart for Lowe’s

Weekly chart showing the share price performance of Lowe's Companies, Inc. (LOW)

The weekly chart for Lowe's is negative, with the stock below its five-week modified moving average at $115.84. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $92.21. The 12 x 3 x 3 weekly slow stochastic reading declined to 63.84 last week, down from 76.22 on Feb. 28. 

Trading strategy: Buy Lowe's shares on weakness to the "reversion to the mean" at $92.21. Reduce holdings on strength to the semiannual, quarterly, and monthly risky levels at $112.65, $118.25, and $121.65, respectively.

How to use my value levels and risky levels: Stock closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual, and annual levels remain on the charts. Each calculation uses the last nine closes on 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 shares 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 their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting 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, which 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 is typically followed by gains of 10% to 20% over the next three to five months.

Want to learn how to integrate trading levels into your everyday trading strategy? Check out my new publication, 2-Second Trader.

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

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