Footwear retailer Foot Locker, Inc. (FL) crashed at Friday's open after releasing earnings, printing a huge price gap from its 200-day simple moving average at $53.99 on Thursday to a 52-week low of $43.04. The stock is also below its "reversion to the mean" at $57.32, which failed to hold last week as a warning. The company had a winning streak of beating analysts' earnings per share estimates for six consecutive quarters, but this string ended on Friday.

Foot Locker stock closed Thursday, May 24, at $52.83, down 0.7% year to date but 18.8% above its Oct. 26, 2018, low at $44.47. The stock continues to consolidate its 2017 bear market decline. From its all-time intraday high of $79.43 set during the week of Dec. 9, 2016, to its low of $28.42 set during the week of Nov. 10, 2017, the stock declined 64%. Its quarterly value level lags at $26.29.

The stock is reasonably priced fundamentally with a P/E ratio of 11.51 and a dividend yield of 2.80%, according to Macrotrends, but traders should be wary of trying to "catch a falling knife."

The daily chart for Foot Locker

Daily chart showing the share price performance of Foot Locker, Inc. (FL)
Refinitiv XENITH

Foot Locker stock has had a volatile ride so far in 2019. The retailer had a positive reaction to earnings on March 1 and set its 2019 intraday high of $68.00. Obviously, investors sold this stock on strength. The stock closed Thursday, May 23, below its 200-day simple moving average at $53.99, which was a warning ahead of this earnings report released on Friday.

The close of $53.20 on Dec. 31 was an important input to my proprietary analytics. Its annual risky level is above the chart at $78.79, and the semiannual pivot at $57.83 was a sell level on May 10. The March 29 close of $60.60 was another input to my analytics, and the second quarter value level is $26.29. The April 30 close of $57.21 resulted in a risky level for May at $61.40.

The weekly chart for Foot Locker 

Weekly chart showing the share price performance of Foot Locker, Inc. (FL)
Refinitiv XENITH

The weekly chart for Foot Locker is negative, with the stock below its five-week modified moving average at $55.33 and below its 200-week simple moving average, or "reversion to the mean," at $57.32. Note that the stock set its all-time intraday high of $79.43 during the week of Dec. 9, 2016, and then traded as low as $28.42 during the week of Nov. 10, 2017. This bear market decline of 64% is being consolidated. The 12 x 3 x 3 weekly slow stochastic reading is projected to fall to 25.89 this week, down from 30.72 on May 17.   

Trading strategy: Buy Foot Locker stock on weakness to its quarterly value level at $26.29 and reduce holdings on strength to its semiannual pivot at $57.83.

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.

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