Signet Jewelers Ltd. (SIG) beat analysts' earnings estimates for the eighth consecutive quarter on Dec. 5. The stock popped on the report, and if gains hold, the daily chart could soon confirm a "golden cross" formation. The stock traded as high as $22.33 on Dec. 13 and then opened Monday below a weekly risky level at $20.95.
The stock is fundamentally "too cheap to ignore," as its P/E ratio is 5.30 with a generous dividend yield of 7.37%, according to Macrotrends. Signet is the world's largest retailer of diamond jewelry. The company is headquartered in Akron, Ohio, but domiciled in Bermuda.
The stock closed last week at $20.09, down 36.8% year to date and in bear market territory at 46% below its 2019 high of $37.21 set on Jan. 9. The stock has been in recovery mode, up a bull market 93.2% since trading as low as $10.40 on Sep. 4.
In the longer term, Signet Jewelers stock has had an extremely volatile ride. From a low of $5.91 during the week of Feb. 6, 2019, to the high of $152.27 during the week of Oct. 30, 2015, the stock jumped 25-fold. Then, from that high to the low of $10.40 posted Sep. 4, 2019, the stock crashed by 93%.
The daily chart for Signet
Signet stock has been below a "death cross" since Dec. 19, 2018, when the 50-day simple moving average (SMA) fell below the 200-day SMA, indicating that lower prices lie ahead. Fast forward to now, and the stock could form a "golden cross" if weakness holds its 200-week SMA, now at $18.99. This is confirmed if the 50-day SMA rises above the 200-day SMA to signal that higher prices will follow. The stock begins this week below a monthly pivot at $20.95.
The weekly chart for Signet
The weekly chart for Signet is positive but overbought, with the stock above its five-week modified moving average at $18.53. The stock is well below its 200-week SMA, or "reversion to the mean," at $56.48. The stock has been below this average since the week of June 17, 2016, when the average was $97.65. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 83.03, which is above the overbought threshold of 80.00.
Trading strategy: Buy Signet Jewelers stock on weakness to its 200-day SMA at $18.99. I do not have risky levels at which to sell on strength. The close on Dec. 31 will result in new monthly, quarterly, semiannual, and annual levels from my algorithms.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play. The close at the end of June 2019 established new semiannual levels, and the semiannual level for the second half of 2019 remains in play. The quarterly level changes after the end of each quarter, so the close on Sep. 30 established the level for the fourth quarter. The close on Nov. 29 established the monthly level for December.
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.