AutoNation, Inc. (AN) reports second quarter earnings on Tuesday, July 23, with the stock between its monthly value level at $36.82 and its quarterly risky level at $44.73. AutoNation is a multi-brand automobile dealership that provides both new and pre-owned vehicles and associated services.
The stock closed the first half of 2019 on June 28 at $41.94, which became a key input to my proprietary analytics. Left over from the first half of the year is the annual risky level well above the market at $64.62. The value level for the second half of 2019 is well below the market at $29.67. The value level for July is $36.82, with the third quarter risky level at $44.73 defining the trading range.
The daily chart shows a "golden cross," and the weekly chart has been positive since the week of June 14, when the stock closed at $41.24. Fundamentally, AutoNation is cheap with a P/E ratio of 9.28, but it's not a value play, as it does not offer a dividend, according to Macrotrends.
Analysts expect AutoNation to post earnings per share of $1.08 when it reports results before the opening bell on Tuesday, July 23. Wall Street expects the company to report a year-over-year decline in earnings on lower revenue. The stock closed last week at $42.05, up 17.8% so far in 2019, and is in bull market territory at 28.1% above its March 15 low of $32.83. The stock set its 2019 high of $43.36 on April 26.
The daily chart for AutoNation
The daily chart shows that AutoNation has been above a "golden cross" since June 5, when the 50-day simple moving average (SMA) rose above the 200-day SMA, indicating that higher prices lie ahead. Since this bullish signal, weakness has held the 50-day SMA, now at $41.00, with the stock above its 200-day SMA, now at $38.22. The stock has been moving sideways between its monthly value level at $36.82 and its quarterly risky level at $44.73.
The weekly chart for AutoNation
The weekly chart for AutoNation is positive, with the stock above its five-week modified moving average of $41.35. The stock is below its 200-week SMA, or "reversion to the mean," at $46.49, last tested during the week of June 22, 2018, when the average was $51.96. The 12 x 3 x 3 weekly slow stochastic reading ended last week rising to 78.74 but shy of the overbought threshold of 80.00.
Trading strategy: Buy AutoNation shares on weakness to the monthly value level at $36.82 and reduce holdings on strength to the quarterly risky level at $44.73.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
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.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.