U.S. Bancorp (USB) has beaten or matched earnings per share (EPS) estimates for at least five years. But today, banks are under pressure because of loan losses due to defaults caused by COVID-19. U.S. Bancorp stock closed Friday, April 17, well below its monthly and quarterly risky levels at $43.50 and $45.64, respectively.

Shares of the major regional bank ended last week at $35.06, down 40.2% year to date but in bull market territory at 21.2% above the March 23 low of $28.59. The stock is also in bear market territory at 42.6% below its all-time high of $61.11 set on Dec. 13, 2019.

The stock is cheap with a P/E ratio of just 7.87 and a dividend yield of 5.29%, according to Macrotrends. USB is the fifth largest bank according to Federal Deposit Insurance Corporation (FDIC) data, with $486.8 billion in total assets at the end of 2019.

The U.S. banking system was under stress in 2019 – Problems loom in 2020

The FDIC Quarterly Banking Profile (QBP) for the fourth quarter of 2019 also covers data for the full year. Net income in the banking system declined to $233.1 billion, down 1.5% from 2018, with banks showing slower growth in net income. Banks were worried about the economy as they increased loan loss provisions, and they also reported lower non-interest income.

The daily chart for U.S. Bancorp

Daily chart showing the share price performance of U.S. Bancorp (USB)
Refinitiv XENITH

Shares of U.S. Bancorp had been above a "golden cross" set on June 17, 2019, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. This tracked the stock to its 52-week high of $61.11 set on Dec. 16. This buy signal ended when the stock moved below its 200-day simple moving average on Feb. 21.

This was quickly followed by the formation of a "death cross" set on March 4, when the 50-day simple moving average fell below the 200-day simple moving average to indicate that lower prices would follow. The low was $28.59 set on March 23. The rebound has been below the stock's monthly and quarterly risky levels at $43.50 and $45.64, respectively.

The weekly chart for U.S. Bancorp

Weekly chart showing the share price performance of U.S. Bancorp (USB)
Refinitiv XENITH

The weekly chart for U.S. Bancorp is neutral, with the stock below its five-week modified moving average at $38.27. The stock is also well below its 200-week simple moving average, or "reversion to the mean," at $51.20. It has been below this moving average since the week of Feb. 28.

The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 21.67 this week, up from 19.37 on April 17. At its December high, this reading was above 90.00, which put the stock in an "inflating parabolic bubble" formation. This tracked the sharp decline in the share price of this major regional bank.

Trading strategy: I do not have a value level at which to buy on weakness. Reduce holdings in U.S. Bancorp on strength to the monthly and quarterly risky levels at $43.50 and $60.42, respectively.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.

Second quarter 2020 and monthly levels for April were established based upon the closing price on March 31. New weekly levels are calculated after the end of each week, and new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, while annual levels are in play all year long.

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. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.