Best Buy Co, Inc. (BBY) beat analysts' earnings estimates before the open on Aug. 25. The stock set its all-time intraday high of $119.48 the day before on Aug. 24. The stock held its semiannual pivot at $108.97 on Aug. 25, but this level failed to hold on Sept. 4.
The retailer of consumer durables including electronics and appliances closed last week at $106.31, up 21.1% year to date and in bull market territory at 121% above its March 19 low of $48.11. Best Buy is also in correction territory at 11% below its Aug. 24 high of $119.48. The stock has a P/E ratio of 17.30 and a dividend yield of 1.98%, according to Macrotrends.
The daily chart for Best Buy
The daily chart for Best Buy shows that the stock had a bear market decline of 47.7% from a high of $91.99 on Feb. 20 to its March 19 low of $48.11. It then had a bull market rise of 148% to its all-time intraday high of $119.48 set on Aug. 24.
A false death cross formed on April 24, which was followed by a golden cross confirmed on June 18. This happened when the 50-day simple moving average (SMA) rose above the 200-day SMA to indicate that higher prices would follow.
The stock failed to hold its 50-day SMA on Feb. 24 and then failed to hold its 200-day SMA on March 6. This led to the March 19 low. From the V-shaped bottom, the stock returned to its 50-day SMA on April 17 and then traded around its 200-day SMA between April 27 and June 15. This was followed by the golden cross on June 18.
The annual pivot at $79.03 was a magnet between April 28 and June 15. The stock reached its semiannual pivot at $108.97 on Aug. 14. This was a magnet after Best Buy stock set its all-time intraday high of $119.48 on Aug. 24. Best Buy is now trading between its 50-day SMA at $100.02 and its semiannual pivot at $108.97.
The weekly chart for Best Buy
The weekly chart for Best Buy is positive but overbought, with the stock above its five-week modified moving average of $103.11. Best Buy is well above the 200-week SMA, or reversion to the mean, at $67.99.
The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week declining to 84.43, down from 90.30 on Sept. 4. At this high, the stock was in an "inflating parabolic bubble" formation, which is a warning that the downside risk is significant.
Trading strategy: Buy Best Buy stock on weakness to its monthly value level at $85.72, and reduce holdings on strength to the semiannual pivot at $108.97.
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 third quarter 2020 level was established based upon the June 30 close, and the monthly level for September was established based upon the Aug. 31 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.