Signet Jewelers Limited (SIG) beat analysts' earnings estimates before the opening bell this morning, but the stock stayed between its quarterly value level at $26.87 and its weekly risky level at $29.33. The stock is now "too cheap to ignore" for both fundamental and technical reasons.

More specifically, Signet has a low P/E ratio of 7.20 and offers a dividend yield of 5.35%, according to Macrotrends. In mid-February, the stock had a weekly stochastic reading at 5.40, well below 10.00, which is the level at which I consider a stock to be "too cheap to ignore."

Signet is the world's largest retailer of diamond jewelry. The company has headquarters in Akron, Ohio, but is domiciled in Bermuda. Although it beat estimates in the quarterly report, the jeweler offered conservative guidance. Signet continues to be in cost-cutting mode while boosting advertising, and the environment included a decline in same-store sales. Customer demand for legacy collections was disappointing.

The stock closed Tuesday, April 2, at $27.65, down 13% year to date and in a bear market territory at 61.1% below its 2018 high of $71.07 set on Aug. 30. However, the stock is now in recovery mode, up 17% since trading as low as $23.64 on Jan. 22.

The daily chart for Signet 

Daily chart showing the share price performance of Signet Jewelers Limited (SIG)
Refinitiv XENITH

Signet stock has been below a "death cross" since Dec. 19, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices would follow. This negative signal was in play when the stock set its Jan. 22 low of $23.64.

The close of $31.77 on Dec. 31 was input to my proprietary analytics. This established a semiannual value level at $16.80 and an annual risky level at $100.08. The March 29 close at $27.16 was the latest input to my analytics, and this resulted in a quarterly and monthly value levels at $26.87 and $26.14, respectively, and a weekly risky level at $29.33.

The weekly chart for Signet

Weekly chart showing the share price performance of Signet Jewelers Limited (SIG)
Refinitiv XENITH

The weekly chart for Signet is positive, with the stock above its five-week modified moving average at $27.84. The stock is well below its 200-week simple moving average, or "reversion to the mean," at $76.84. Signet has been below this average since the week of June 3, 2016, when the average was $97.55.

The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 23.66 this week, up from 21.01 on March 29. Note that the reading in mid-February was 5.40, below 10.00, which I define as a stock that is "too cheap to ignore."

Trading strategy: Buy Signet Jewelers stock on weakness to its quarterly and monthly value levels at $26.87 and $26.14, respectively. Reduce holdings on strength to the weekly pivot at $29.33 and then to the 200-day simple moving average at $46.91.   

How to use my value levels and risky levels: Value levels and risky levels are based on the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based on the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, and March. The quarterly level was changed at the end of March.

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 already. 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 were 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 readings 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.