AutoZone Beats Estimates, Stays Below Quarterly Risky Level

AutoZone, Inc. (AZO) beat earnings estimates on May 26, and the stock traded as high as $1,178.19 that day. This puts the stock between its monthly value level at $1,085.63 and its quarterly risky level at $1,212. 75.

This retailer of aftermarket auto parts and accessories offers replacement parts that are usually cheaper than the branded parts available at automobile dealerships. The company extended its earnings per share (EPS) winning streak to 12 consecutive quarters. The stock has a P/E ratio of 17.88 and does not offer a dividend, according to Macrotrends.

AutoZone stock closed last week at $1,153.93, down 3.1% year to date and 9.5% below its all-time intraday high of $1,274.40 set on Dec. 10, 2019. The stock is also in bull market territory at 68.5% above its March 23 low of $684.91.

The daily chart for AutoZone

AutoZone had been above a golden cross since July 19, 2018. This bullish signal occurred when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices lie ahead. This buy signal tracked the stock to its all-time intraday high of $1,274.40 set on Dec. 10, 2019.

To the downside, the stock fell below its 50-day simple moving average on Jan. 6. Before this occurred, the stock began 2020 below its annual pivot at $1,211.81. A death cross was confirmed on March 2, when the 50-day simple moving average fell below the 200-day simple moving average. The 200-day simple moving average failed to hold on March 11, which led to the decline to its March 23 low of $684.91.

On the V-shaped bottom, AutoZone stock rose above its 50-day simple moving average on April 17. The semiannual pivot at $1,004.05 was a magnet between April 17 and May 4. The stock moved above its 200-day simple moving average on May 18. This put the stock above its monthly risky level for June at $1,085.63. The stock is below its annual pivot at $1,211.81.

The weekly chart for AutoZone

The weekly chart for AutoZone is positive but overbought, with the stock above its five-week modified moving average of $1,073.65. The stock is well above its 200-week simple moving average, or reversion to the mean, at $831.01. This level was last crossed during the week of April 10, 2020, when the average was $819.77.

The 12 x 3 x 3 weekly slow stochastic reading is projected to rise 81.95 this week, up from 76.27 on May 29. Moving above the 80.00 threshold is the overbought reading.

Trading strategy: Buy Autozone stock on weakness to its monthly and semiannual value levels at $1,085.63 and $1,004.05, respectively, and reduce holdings on strength to the annual and quarterly risky levels at $1,211.81 and $1,212.75, respectively.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.

The second quarter 2020 level was established based upon the March 31 close, and the monthly level for June was established based upon the May 29 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and 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 the 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 "too cheap to ignore," which is typically 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.