Shares of home improvement giant Lowe's Companies, Inc. (LOW) gapped below their 200-day simple moving average at $102.39 on a negative reaction to earnings reported on Wednesday, May 22. The stock declined to as low as $95.41 and then closed between its monthly and semiannual pivots at $98.75 and $96.55, respectively.
The stock closed Wednesday, May 22, at $97.94, up 6% year to date and 15.6% above its Nov. 20 low of $84.75. However, the stock is in correction territory at 17.2% below its April 17 all-time intraday high of $118.23.
The fundamental data for Lowe's shows an above-market P/E ratio of 21.78 and a dividend yield of 1.73%, according to Macrotrends. Lowe's missed first quarter estimates and lowered forward guidance on rising costs.
The daily chart for Lowe's
The daily chart for Lowe's shows the extreme volatility following the negative reaction to earnings on May 22. The stock was above its quarterly and annual pivots at $108.87 and $109.16 at Tuesday's close, then gapped below its 200-day simple moving average at $102.39 before stabilizing between its monthly and semiannual pivots at $98.75 and $96.55, respectively.
The weekly chart for Lowe's
The weekly chart for Lowe's is negative, with the stock below its five-week modified moving average at $106.98. The stock is above its 200-week simple moving average, or "reversion to the mean," at $84.29. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 59.23, down from 70.43 on May 17.
Trading strategy: Buy Lowe's shares on weakness to the 200-week simple moving average at $84.29 and reduce holdings on strength to the 200-day simple moving average at $102.39. In between are the monthly and semiannual pivots at $98.75 and $96.55, 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 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.