Shares of Lumber Liquidators Holdings, Inc. (LL), the American retailer of hardwood flooring, declined to a new 52-week low of $6.59 on Wed., Aug. 7, even though the company beat earnings estimates. The decline came on guidance that sales were slowing due to China tariffs. Same-store sales for Lumber Liquidators are projected to slow as the retailer raises prices.
The stock was below its monthly pivot for August at $8.56 when the earnings were released, and this level provides a magnet for a technical rebound on Aug. 8. The stock traded as high as $8.11 so far on the rebound "filling the price gap" to the Aug. 6 low of $8.07.
The stock closed Wednesday, Aug. 7, at $7.42, down 22.1% year to date and in bear market territory at 48.6% below its 2019 high of $14.44 set on May 1. The stock is up 12.8% from the Aug. 7 low.
Lumber Liquidators stock is not cheap, as its P/E ratio is 21.59 and the company does not offer a dividend, according to Macrotrends. For investors, there are two reasons for concern. Many money managers cannot buy a stock that does not pay a dividend, and others cannot buy a stock trading below $10 per share.
The daily chart for Lumber Liquidators
The daily chart for Lumber Liquidators shows that the stock has been below a "death cross" since Jan. 17, 2018, when the 50-day simple moving average declined below the 200-day simple moving average to indicate that lower prices would follow. The stock could have been sold at the 200-day simple moving average at $30.16 on Jan. 22, 2018.
The stock tried to stabilize in 2019, but the 2019 high of $14.44 was set on May 1. The stock is below its monthly pivot at $8.56 and its quarterly and semiannual risky levels at $14.24 and $15.28, respectively.
The weekly chart for Lumber Liquidators
The weekly chart for Lumber Liquidators is negative, with the stock below its five-week modified moving average of $10.00. The stock is also below its 200-week simple moving average, or "reversion to the mean," at $18.90. Note how the "reversion to the mean" had capped all attempts to move higher between the week of Sept. 1, 2017, and the week of July 27, 2018. The 200-week simple moving average declined from $38.87 and $25.68 during this time horizon. The 12 x 3 x 3 weekly slow stochastic reading is projected to fall to 26.23 this week, down from 29.16 on Aug. 2.
Trading strategy: Reduce holdings in Lumber Liquidators on strength to the quarterly and semiannual risky levels at $14.24 and $15,28, respectively. The monthly pivot for August is $8.56.
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.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.