Dick's Sporting Goods, Inc. (DKS) stock has been above a golden cross on its daily chart, while its weekly chart is positive but overbought. The retailer of authentic sporting goods including apparel, footwear, and guns 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 Wednesday's close of $49.80, the stock was down 6.1% year to date and just 6.6% below its Dec. 31, 2019, high of $49.89. The retailer's shares are also 245.4% above the March 18 low of $13.46. Dick's Sporting Goods has a P/E ratio of 23.76 and a dividend yield of 2.78%, according to Macrotrends.
The daily chart for Dick's Sporting Goods
The daily chart for Dick's Sporting Goods shows the consolidation of the 73% decline from the Dec. 31 high of $49.80 to the March 18 low of $13.46. The gap higher on Nov. 26, 2019, was on a positive reaction to earnings. This led to the Dec. 31 high.
The stock fell below its 50-day simple moving average on Jan. 30. It 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. This was after the stock set its low.
The V-shaped recovery had shares of Dick's Sporting Goods back to the 50-day simple moving average on April 27. Strength then reached the 200-day simple moving average on June 2. As the third quarter began, the stock held its 200-day simple moving average and its quarterly value level at $38.57 on July 14.
Holding these support levels indicated additional upside potential. The subsequent high was $47.94 set on June 11. Shares of Dick's Sporting Goods are now below the weekly risky level at $47.26 but above the 50-day simple moving average at $42.71.
The weekly chart for Dick's Sporting Goods
The weekly chart for Dick's Sporting Goods is positive but overbought, with the stock above its five-week modified moving average of $43.23. The stock has been above its 200-week simple moving average, or reversion to the mean, at $37.94 since the week of July 17.
The 12 x 3 x 3 weekly slow stochastic reading is projected to slip to 89.52 this week, down from 90.42 on Aug. 14. This puts the stock in an "inflating parabolic bubble" formation.
Trading strategy: Buy Dick’s Sporting Goods shares on weakness to the quarterly, semiannual, and monthly value levels at $38.57, $33.78, and 31.82, respectively. Reduce holdings on strength to the weekly risky level at $47.26.
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 level 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 August was established based upon the July 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 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 a gain 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.