Ulta Beauty, Inc. (ULTA), a major retailer of prestige cosmetics, reports quarterly earnings after the closing bell on Thursday, March 14. The stock closed Tuesday, March 12, at $311.41, up 27.2% so far in 2019 and in bull market territory at 38.8% above its Christmas Eve low of $224.43. The stock is just 3.4% below its all-time intraday high of $322.48 set on Nov. 19.

Ulta is clearly a play on momentum, as the stock has an elevated P/E ratio of 30.91 and does not offer a dividend, according to Macrotrends. The stock has a 12 x 3 x 3 weekly slow stochastic reading above 80.00, which makes it overbought. Shares of Ulta are above my annual pivot of $308.40, which is the key level to hold following earnings. If there is a positive reaction to earnings, a new high is likely, as my monthly and semiannual risky levels are $326.66 and $332.64, respectively.

Analysts expect Ulta to report earnings per share (EPS) of $3.55 when the company releases results on Thursday. The cosmetics retailer has beaten EPS estimates in three consecutive quarters and in 17 out of the past 20 quarters. Wall Street expects solid growth in online and in-store sales.

The daily chart for Ulta Beauty

Daily technical chart showing the share price performance of Ulta Beauty, Inc. (ULTA)
Refinitiv XENITH

Ulta stock has been above a "golden cross" since May 11, 2018, when the 50-day simple moving average rose above the 200-day simple moving to indicate that higher prices lay ahead. This positive signal tracked the stock to its 2018 high of $322.49 on Nov. 19. The stock plunged 30% from this high to its Dec. 24 low of $224.43. Despite this bear market, buyers could have added to positions at its 200-day simple moving average at $252.43 on Dec. 10.

The close of $244.84 on Dec. 31 was the input to my proprietary analytics and resulted in my quarterly value level at $241.02, my annual pivot at $308.40 and my semiannual risky level at $332.64. My quarterly value level held as a buying opportunity on the first two days of 2019. The close of $312.49 on Feb. 28 was also an input to my analytics and resulted in my monthly risky level at $326.66. My weekly risky level is $319.18.

The weekly chart for Ulta Beauty

Weekly technical chart showing the share price performance of Ulta Beauty, Inc. (ULTA)
Refinitiv XENITH

The weekly chart for Ulta is positive but overbought, with the stock above its five-week modified moving average of $300.87. The stock is above its 200-week simple moving average, or "reversion to the mean" at $232.93. Investors could have bought the stock at this average when it was $224.95 and the stock set its low of $224.43. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 87.70, up from 85.40 on March 8. On a positive reaction to earnings, this reading could rise above 90.00, making Ulta an "inflating parabolic bubble."

Trading Strategy: Buy Ulta shares on weakness to my annual pivot at $308.40 and reduce holdings on strength to my monthly and semiannual risky levels at $326.66 and $332.64, respectively. My weekly risky level can be a sell level for more aggressive trading.

How to use my value levels and risky level

My value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels is based upon the closes on Dec. 31. The original quarterly, semiannual and annual levels remain in play. The weekly level is changed each week, and the monthly level was changed at the end of January and February.

My theory is that nine years of 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 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 the 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 most recent 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 stock with 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.