Dick's Sporting Goods Misses Estimates but Is Above Key Moving Average

Dick's Sporting Goods, Inc. (DKS) missed earnings per share (EPS) estimates on June 2, but the stock moved above its 200-day simple moving average at $37.40. The retailer of authentic sporting goods including apparel, footwear, and a popular array of accessories is consolidating a bear market decline of 73% from its Dec. 31 high of $49.80 to its March 18 low of $13.46.

At Friday's close of $39.41, the stock is down 20.4% year to date and is 20.9% below its Dec. 31 high. Dick's stock is also 192.8% above its March 18 low. This is extreme volatility that can be traded using daily and weekly charts and key levels from my proprietary analytics. Dick's has a P/E ratio of 20.12 and a dividend yield of 3.46%, according to Macrotrends.

The daily chart for Dick's Sporting Goods

The daily chart for Dick's shows a price gap higher on Nov. 26 on a positive reaction to earnings. This led to the test of the Dec. 31 high of $49.80. The stock fell below its 50-day simple moving average on Jan. 30, when it also fell below its semiannual pivot at $46.16. This level was tested again on Feb. 6 as an opportunity to reduce holdings.

Dick's stock fell below its 200-day simple moving average on Feb. 26, which led to the March 18 low of $13.46. A death cross was confirmed on March 24, when the 50-day simple moving average fell below the 200-day simple moving average, which led to the low.

On the rebound, the stock reached its 50-day simple moving average on April 27. The stock gapped above its quarterly pivot at $32.99 on May 26. Note how the 200-day simple moving average has been a magnet since June 2.

The weekly chart for Dick's Sporting Goods  

The weekly chart for Dick's is positive, with the stock above its five-week modified moving average of $34.49. The stock is trading back and forth around its 200-week simple moving average, or reversion to the mean, at $38.61. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 81.11 this week, up from 74.36 on June 12.

Trading strategy: Buy Dick's Sporting Goods stock on weakness to the monthly and quarterly value levels at $34.22 and $32.99, respectively, and reduce holdings on strength to the semiannual risky level at $46.16.

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.