Lowe's Stock Trades to an All-Time High on Earnings

Lowe’s Companies, Inc. (LOW) announced better-than-expected earnings when it released results on Aug. 19. Shares of the home improvement retailer subsequently traded to an all-time intraday high of $167.43 this morning.

The stock closed Monday, Aug. 24, at $165.63, up 38.3% year to date and in bull market territory at 176.1% above its March 19 low of $60.00. Lowe's beat earnings per share (EPS) estimates for the fifth consecutive quarter. Its P/E ratio is 20.11, with a dividend yield of 1.39%, according to Macrotrends.

The daily chart for Lowe's

The daily chart for Lowe's shows a 52.6% decline from a high of $126.73 set on Feb. 20 to the March 19 low of $60.00. This was followed by a 179% gain to its all-time intraday high of $167.43 set on Aug. 25 (today).

The 50-day simple moving average (SMA) failed to hold on Feb. 25. The 200-day SMA failed to hold on March 5. From the V-shaped bottom of $60.00 on March 19, the stock returned to its 50-day SMA on April 24. Lowe's then gapped above its 200-day SMA on May 5.

The stock reached its annual pivot at $135.92 on June 17. Holding this level drove the stock to its all-time intraday high set today at $167.43. The stock is above its annual, quarterly, monthly, and semiannual value levels at $135.92, $127.45, $126.39, and $125.37, respectively.

Note the false death cross formation set on March 26, when the 50-day SMA fell below the 200-day SMA. This was followed by a golden cross confirmed on June 16, when the 50-day SMA rose above the 200-day SMA. This tracked the stock to its all-time intraday high set today.

The weekly chart for Lowe's 

The weekly chart for Lowe's is positive but extremely overbought, with the stock above its five-week modified moving average at $150.63. The stock is also well above its 200-week SMA, or reversion to the mean, at $97.99. The huge momentum uptrend began from a test of this moving average when it was $92.58 during the week of April 24. The 12 x 3 x 3 weekly slow stochastic reading is projected to slip to 94.74 this week, down from 94.99 on August 21.   

Trading strategy: Buy Lowe's stock on weakness to its annual, quarterly, monthly, and semiannual value levels at $135.92, $127.45, $126.39, and $125.37, respectively. Reduce holdings on strength to today's high at $167.43.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each level uses the last nine closes in these time horizons.

The third quarter 2020 level was established based upon the June 30 close, and the monthly level for August was established based upon the July 31 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.

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. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by a gain of 10% to 20% over the next three to five months.

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