The TJX Companies, Inc. (TJX) is the parent of discount retailers TJ Maxx, Home Goods, and Marshalls. These retailers offer quality items at discount prices. The retailer reported earnings before the opening bell on Tuesday, Aug. 20, and missed on revenue. A drag on sales came from Home Goods. Guidance was positive, as the company indicates that it is seeing improved traffic for branded merchandise at affordable prices. The stock opened Tuesday below its 200-day simple moving average at $51.26, which indicates risk to its May 29 low at $49.05.

TJX stock closed Monday, Aug. 19, at $51.55, up 17% year to date and in bull market territory at 24.2% above its Dec. 24 low of $41.49. The stock is 9.8% below its all-time intraday high of $57.15 set on July 15.

The daily chart for TJX Companies 

Daily chart showing the share price performance of The TJX Companies, Inc. (TJX)
Refinitiv XENITH

The daily chart shows that TJX broke below its 200-day simple moving average at $51.26 Tuesday morning on a negative reaction to earnings. The stock was below its semiannual pivot at $52.26 at Monday's close, which provided a warning. With the stock also below its monthly, annual, and quarterly risky levels at $54.74, $56.51, and $57.96, respectively, which is a warning to the downside. The first key level to hold is its May 29 low of $49.05.

The weekly chart for TJX Companies

Weekly chart showing the share price performance of The TJX Companies, Inc. (TJX)
Refinitiv XENITH

The weekly chart for TJX is negative, with the stock below its five-week modified moving average of $52.63. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $42.13. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 47.91 this week, down from 57.51 on Aug. 16. During the week of April 26, with the stock as high as $55.78, this reading was 91.14, above 90.00 as an "inflating parabolic bubble," and this bubble is popping.

Trading strategy: Buy TJX shares on weakness to the 200-week simple moving average at $42.13 and reduce holdings on strength to the semiannual, monthly, annual, and quarterly risky levels at $52.26, $54.74, $56.51, and $57.96, respectively.

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.