Department store Kohl's Corporation (KSS) reports quarterly results before the opening bell on Tuesday, Aug. 20, with the stock fundamentally "too cheap to ignore," with a P/E ratio of just 7.92 and a generous dividend yield of 6.05%, according to Macrotrends. Kohl's offers brand-name apparel, shoes, accessories, and home and beauty products at affordable prices. My call is to buy Kohl's stock on weakness to its semiannual value level at $40.09.
The stock closed last week at $45.51, down 31.4% year to date and in bear market territory at 45.4% below its all-time intraday high of $83.28 set on Nov. 12. The stock is just 5% above its Aug. 15 low of $43.33. Kohl's is below a "death cross" on its daily chart and has a negative but oversold weekly chart.
Analysts expect Kohl's to post earnings per share (EPS) of $1.51 to $1.53. The retailer's winning streak of beating EPS estimates for five consecutive quarters came to end with last quarter's results, which were released on May 21.
The retailer is having difficulty navigating increasing tariffs. Some on Wall Street believe that Kohl's will benefit from the fact that it has a relationship with Amazon.com, Inc. (AMZN), as consumers who buy online using Amazon can drop off their returns at Kohl's stores. Since July 8, this return program has expanded to all 1,150 Kohl's stores across the country. Consumers using this service may snoop for deals on the shelves at Kohl's
The daily chart for Kohl's
The daily chart for Kohl's shows the stock below a "death cross" that formed on Dec. 24, when the 50-day simple moving average (SMA) fell below the 200-day SMA, indicating that lower prices would follow. The trading strategy when this occurs is to sell shares on strength to the 200-day SMA, and the chart clearly shows several opportunities to sell at $70.00 and above between Jan. 9 and May 1.
The close of $66.34 on Dec. 31 was a major input to my proprietary analytics, and the annual pivot remains at $55.45. The close of $47.55 on June 28 was another input to my analytics, and a semiannual value level is $40.09, with a quarterly risky level at the top of the chart at $82.01. The close of $53.86 on July 31 was also an input that resulted in a monthly risky level for August at $54.39.
The weekly chart for Kohl's
The weekly chart for Kohl's is negative but oversold, with the stock below its five-week modified moving average at $49.69. The stock is also below its 200-week SMA, or "reversion to the mean," at $52.81. The 12 x 3 x 3 weekly slow stochastic reading ended last week rising to 19.15, up from 18.50 on Aug. 9. During the week of June 28, this reading was 8.09, below the 10.00 threshold, which made the stock technically "too cheap to ignore."
Trading strategy: Buy Kohl's stock on weakness to its semiannual value level at $40.09 and reduce holdings on strength to its monthly and annual pivots at $54.39 and $55.45, respectively.
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 annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on July 31. The quarterly level was changed at the end of June.
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. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.