The Kroger Company (KR), the major supermarket chain, missed earnings estimates on Dec. 5, but the stock was protected by positive daily and weekly charts. The daily chart showed the stock above a "golden cross" since Oct. 31, and the weekly chart has been positive since the week of Oct. 25.

This is an example of the charts trumping the fundamentals. The grocery store company may have missed earnings per share estimates in two of the past four quarters, but the stock is consolidating a longer-term bear market decline. The stock set its all-time intraday high of $42.75 in January 2016 and declined 53.9% to its October 2017 low of $19.69. This decline is being consolidated.

The stock closed Tuesday, Dec. 10, at $27.87, up just 1.3% year to date, but it is in bull market territory at 34.6% above the July 23 low of $20.70. The stock is fundamentally positive with a P/E ratio of 13.03 and a dividend yield of 2.33%.

The daily chart for Kroger

Daily chart showing the share price performance of The Kroger Company (KR)
Refinitiv XENITH

Kroger has been above a "golden cross" since Oct. 31, when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices lie ahead. The stock is above its monthly and semiannual value levels at $24.34 and $22.25, respectively, and below its quarterly and annual risky levels, which are above the chart at $32.01 and $41.22, respectively. When a stock is above a "golden cross," the strategy is to buy weakness to its 200-day simple moving average, now at $24.53.

The weekly chart for Kroger  

Weekly Chart For Kroger

The weekly chart for Kroger is positive, with the stock above its five-week modified moving average of $26.67. The stock is just below its 200-week simple moving average, or its "reversion to the mean," at $28.38, which has been a barrier on strength since the week of March 3, 2017. The last test was at $31.69 during the week of Nov. 16, 2018. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 80.70 this week, up from 76.93 on Dec. 6. The stock needs a catalyst beyond earnings to break out above the "reversion to the mean."

Trading strategy: Buy Kroger shares on weakness to the 200-day simple moving average at $24.53. Reduce holdings on strength to the 200-week simple moving average at $28.38.

How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play. The close at the end of June 2019 established new semiannual levels, and the semiannual level for the second half of 2019 remains in play. The quarterly level changes after the end of each quarter, so the close on Sep. 30 established the level for the fourth quarter. The close on Nov. 29 established the monthly level for December.

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.