Home improvement retailer Lowe's Companies, Inc. (LOW) should be benefiting from the recoveries from three major hurricanes and the wildfires of California. Over the trailing four quarters however, the company missed consensus estimates, making its third quarter results important for the stock to have a momentum turnaround.

Analysts expect Lowe's to report earnings per share of $1.02 to $1.03 when it releases results before the opening bell on Tuesday. Some analysts that are upbeat about the results are counting on year-over-year improvements to both earnings per share and revenues. On the opposite side of the ledger, stiff competition may put pressure on gross margins. (See also: Opinion: Lowe’s No. 1 Target Is Home Depot, Not Jeff Bezos.)

Lowe's stock is in a large trading range between its February 2015 low of $62.62 and its May 2007 high of $86.25. The stock is also trading between the 38.2% and 23.6% Fibonacci retracement levels of this rally. These retracement levels are $77.21 and $80.66, respectively.

Lowe's closed last week at $80.22, up 12.8% year to date, and is in bull market territory at 23.7% above its post-election low of $64.87 set on Nov. 9, 2016. The stock is 7% below its all-time high of $86.25 set on May 9, 2017.

The weekly chart for Lowe's

Technical chart showing the performance of Lowe's Companies, Inc. (LOW) stockCourtesy of MetaStock Xenith

The weekly chart for Lowe's is neutral, with the stock above its five-week modified moving average of $79.18. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 71.68, down from 75.97 on Nov. 10.

The stock is well above its 200-week simple moving average of $68.95. I consider this moving average as the "reversion to the mean." This is an investment theory that the price of a stock will eventually return to a longer-term simple moving average, and the 200-week is simple to track. A ticker trading above its "reversion to the mean" will eventually decline back to it on weakness. Similarly, a ticker trading below its "reversion to the mean" will eventually rebound to it on strength. Lowe's shares have been above their 200-week simple moving average at $33.29 since the week of Nov. 18, 2011.

Given this chart and analysis, my trading strategy is to buy weakness to my annual pivot of $77.59 and to reduce holdings on strength to my monthly, quarterly and semiannual risky levels of $84.41, $85.28 and $93.54, respectively. (For more, see: Lowe's Stock: Analyzing 5 Key Suppliers.)

 

 

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