Foot Locker Must Hurdle Key Levels on Earnings

Footwear retailer Foot Locker, Inc. (FL) reports earnings before the opening bell on Friday, hoping to match the performance of its previous quarterly report released on Nov. 17. Back then, the stock was rebounding from its 52-week low of $28.42 set on Nov. 8. The stock closed at $31.85 on Nov. 16 and spiked by 30% with an open of $41.33 on Nov. 17. This performance will be difficult to repeat.

Foot Locker shares closed Wednesday, Feb. 28, at $45.91, down 2.1% year to date and in correction territory at 13.7% below the 2018 high of $53.17 set on Jan. 25. The stock set its 2018 low of $44.04 on Feb. 9, when the market correction set its bottom.

Analysts expect Foot Locker to report earnings per share of $1.25 before the opening bell on Friday. Some analysts say that the retailer faces double hurdles of tighter gross margins and administrative expenses. One positive to consider is that you can't try on a pair of athletic shoes online – you must do so in the store at a mall near you. (See also: The Economics Behind Sneakers.)

The daily chart for Foot Locker

Daily technical chart showing the performance of Foot Locker, Inc. (FL) stock
Courtesy of MetaStock Xenith

Foot Locker had been below a "death cross" since June 7, 2017, when the stock closed at $55.29. A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving average, indicating that lower prices lie ahead. This tracked the stock to its 52-week low of $28.42 set on Nov. 8. The "death cross" ended with a "golden cross" set on Feb. 6, when the 50-day rose above the 200-day. A "golden cross" indicates that higher prices lie ahead.

This bullish indicator will be put to a test with the stock going into earnings below its 50-day simple moving average of $48.03. The 200-day simple moving average of $44.23 is an important level to hold on weakness. Note that my quarterly pivot of $48.47 has been a magnet year to date.

The weekly chart for Foot Locker

Weekly technical chart showing the performance of Foot Locker, Inc. (FL) stock

Courtesy of MetaStock Xenith

The weekly chart for Foot Locker will be negative if the stock ends the week below its five-week modified moving average of $47.20. The stock is well below its 200-week simple moving average at $58.84, which is the "reversion to the mean," last tested during the week of June 2, 2017, when the average was $58.05. The 12 x 3 x 3 weekly slow stochastic reading is projected to slip to 65.52 this week, down from 73.35 on Feb. 23.  

Given these charts and analysis, investors should buy Foot Locker shares on weakness to my monthly value level of $37.22 and reduce holdings on strength to the 200-week simple moving average of $58.84. (For more, see: Top 7 Companies Owned by Foot Locker.)