Under Armour, Inc. (UAA) missed earnings per share (EPS) estimates when the company reported results before the open on May 11. The stock gapped lower and continued downward, trading as low as $7.15 on May 14. Under Armour shares closed last week at $7.71, down 64.3% year to date and in bear market territory at 72.2% below the 52-week high of $27.72 set on July 25, 2019. The stock is 7.8% above the May 14 low.
The daily chart shows Under Armour sliding down its 50-day simple moving average as it declined to last week's low. The weekly chart shows the stock below its 200-week simple moving average, which I consider the technical reversion to the mean.
Under Armour stock set its all-time high of $54.70 during the week of Sept. 18, 2015. The stock plunged by a 79% bear market to a multi-year low of $11.40 during the week of Nov. 10, 2017. Under Armour then posted a bull market gain of 138% to its 200-week simple moving average at $27.15 on June 28, 2019. Failure here led to the decline to last week's low.
Sales of sports apparel have been hurt by the spread of COVID-19 and by the closing of the U.S. economy as consumers stay on lockdown.
The daily chart for Under Armour
The daily chart for Under Armour shows the formation of a death cross on Sept. 18, 2019. This occurred when the 50-day simple moving average fell below the 200-day simple moving average to indicate that lower prices would follow. When under a death cross, the strategy is to sell strength to the 200-day simple moving average. This was doable at $21.62 during the week of Dec. 26.
The stock had a huge price gap lower on Feb. 11 on a negative reaction to earnings. Under Armour shares then struggled to the lows seen last week.
The weekly chart for Under Armour
The weekly chart for Under Armour is negative but oversold, with the stock below its five-week modified moving average at $10.12. The stock is also below its 200-week simple moving average, or reversion to the mean, at $21.25.
The 12 x 3 x 3 weekly slow stochastic reading slipped to 17.51 last week, down from 17.76 on May 8. The reading thus remains below the oversold threshold of 20.00.
Trading strategy: Buy Under Armour stock on weakness to its semiannual value level at $6.34. Reduce holdings on strength to the monthly risky level at $13.72.
How to use my value levels and risky levels: The closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.
The second quarter 2020 level was established based upon the March 31 close, and the monthly level for May was established based upon the April 30 close. 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 remain 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 a gain 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.