Luxury retailer Movado Group, Inc. (MOV) reported second quarter earnings before the opening bell on Wednesday, Aug. 28, and missed expectations. The stock plunged further below a "death cross" on its daily chart. The weekly chart is also negative as the stock gaps below its monthly pivot at $23.70.
Movado stock closed Wednesday at $21.22, down 32.9% year to date and in bear market territory at 47.2% below its 2019 high of $40.20 set on March 28. The stock set its multi-year low of $18.78 on Aug. 28 and rebounded from this intraday low by 13%. The stock's all-time intraday high was $53.72, and the decline to $18.78 is a crash of 65%. The stock is reasonably priced with a P/E ratio of 9.71 and a dividend yield of 2.24%, according to Macrotrends.
The daily chart for Movado
The daily chart for Movado shows the formation of a "death cross" on Nov. 2, when the 50-day simple moving average (SMA) fell below the 200-day SMA to indicate that lower prices lie ahead. Since then, there were opportunities to sell strength to the 200-day SMA at $41.82 on Dec. 4 and again at $39.85 on March 28.
The spikes higher on Dec. 4 and March 28 were on positive reactions to earnings. The stock has an annual risky level at $44.11. Its semiannual risky level is $32.29. The quarterly risky level at $43.82 and the monthly pivot at $23.70 expire at the end of this week.
The weekly chart for Movado
The weekly chart for Movado is negative but oversold, with the stock below its five-week modified moving average of $24.63 and is below its 200-week SMA, or "reversion to the mean," at $29.97. The 12 x 3 x 3 weekly slow stochastic reading is projected to end the week at 16.86, below the oversold threshold at 20.00. This reading was 9.64 during the week of Aug. 16, which was below the threshold of 10.00 indicating that the stock was "too cheap to ignore." We need a quarterly or monthly value level in September to take advantage of this indicator.
Trading strategy: With the stock trading at a five-year low, I do not show a value level. Traders should reduce holdings on strength to the semiannual risky level at $32.29.
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.