Shares of footwear retailer Foot Locker, Inc. (FL) are in bull market territory at 26.1% above the Dec. 20 low of $47.07. Based on the stock's 2018 close of $53.20, I show a semiannual risky level of $57.83, which was first tested on Jan. 9 and has been a pivot (or magnet) since then. This strength is consolidating a longer-term bear market decline of 64% from its December 2016 high of $79.43 to its November 2017 low of $28.42.
Within this consolidation, the stock traded as high as $61.10 on Feb. 21 thanks to a pre-earnings announcement by the retailer. After the close on Wednesday, Feb. 20, the company announced that it hiked the dividend by 10% and initiated a share buyback program totaling $1.2 billion. The stock set its 2019 high, which is also its 52-week high, at $61.36 on Feb. 21. This raises the earnings bar when Foot Locker releases quarterly results before the opening bell on Friday, March 1.
Analysts expect Foot Locker to post earnings per share (EPS) of $1.36, with the stock fairly valued at a P/E ratio 13.52 with a dividend yield of 2.31% according to Macrotrends. The retailer beat EPS estimates in five consecutive quarters, and Wall Street expects this string to continue. Buying expensive athletic footwear is generally not done online – customers prefer to buy shoes in the store after trying them on.
The daily chart for Foot Locker
Foot Locker had been above a "golden cross" since Feb. 6, 2018, when the stock closed at $47.64. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average, indicating that higher prices lie ahead. This signal almost ended on Nov. 6, when the two moving averages touched each other. This tracked the stock to its 2019 high of $61.10 set on Feb. 21. Note the price gap higher on May 25 on a positive reaction to earnings, the price gap lower on Aug. 24 in reaction to earnings and the price gap higher on Nov. 21 following the company's most recent earnings report. Today, the stock is well above its 50-day and 200-day simple moving averages at $55.52 and $51.74, respectively.
The close of $53.20 on Dec. 31 was the input to my proprietary analytics. This resulted in a quarterly value level at $31.72, my semiannual pivot at $57.83 and my annual risky level at $78.79. The close of $55.89 on Jan. 31 resulted in my monthly value level at $50.53. This week's risky level is $62.52.
The weekly chart for Foot Locker
The weekly chart for Foot Locker is positive but overbought, with the stock above its five-week modified moving average at $57.13 and above its 200-week simple moving average, or "reversion to the mean," at $57.74. 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 horizontal lines are the Fibonacci retracement levels of this bear market decline. Note that the stock has been trading back and forth around its 61.8% retracement of $59.91 for the past two weeks. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 86.10 this week, up from 84.22 on Feb. 22.
Trading Strategy: Buy Foot Locker shares on weakness to the 50% Fibonacci retracement level at $53.90 and reduce holdings on strength to my annual risky level at $78.79. A negative reaction to earnings could result in a price gap below my semiannual pivot at $57.83, while a positive reaction to earnings could result in a price gap to a new 2019 high.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.