AutoZone, Inc. (AZO) is a retailer of aftermarket auto parts and accessories that are usually cheaper than the branded parts sold by automobile dealerships. It seems logical that the company will be adversely affected by higher tariffs.

AutoZone stock closed Friday, May 17, at $984.09, up 17.4% year to date and in bull market territory at 64.8% above its low of $597.00 posted on May 23, 2018. This is a strong stock, but it is currently trading 8.4% below its all-time intraday high of $1,074.67 set on April 15.

Analysts expect AutoZone to report earnings per share (EPS) of $15.25 when it discloses results before the opening bell on Tuesday, May 21. The stock has a market-neutral P/E ratio of 17.19 and does not offer a dividend, according to Macrotrends. AutoZone has beaten EPS estimates in seven consecutive quarters. The company has been in expansion mode in terms of new store openings, but with expansion comes increased costs of technology and payroll. Unfavorable winter weather may also be a negative.

The daily chart for AutoZone

Daily technical chart showing the share price performance of AutoZone, Inc. (AZO)
Refinitiv XENITH

The daily chart for AutoZone shows that the stock has been above a "golden cross" since July 19, 2018, when its 50-day simple moving average (SMA) rose above its 200-day SMA, indicating that higher prices lie ahead. The stock is now below its 50-day SMA at $1,013.74, which indicates risk to its 200-day SMA at $861.73.

The close of $838.34 on Dec. 31 was an important input into my proprietary analytics, and two levels from the beginning of the year remain in play – its semiannual value level at $852.42 and an annual pivot at $993.23. The close of $1,024.12 on March 29 was another input, generating a second quarter value level at $801.14. The close of $1,022.50 on April 30 was the most recent input and resulted in a risky level for May at $1,016.15.

The weekly chart for AutoZone

Weekly technical chart showing the share price performance of AutoZone, Inc. (AZO)
Refinitiv XENITH

The weekly chart for AutoZone is negative, with the stock below its five-week modified moving average of $998.52. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $740.93. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 68.81 this week, down from 77.32 on May 17. At the April 15 high, this reading was 93.13, above the 90.00 threshold as an "inflating parabolic bubble," and this bubble is popping.

Trading strategy: Buy AutoZone shares on weakness to the semiannual value level at $852.42, and reduce holdings on strength to this month's risky level at $1,016.15. The annual pivot remains at $993.23.

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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March.

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. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."

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