Trendy lifestyle retailer Urban Outfitters (URBN) has been a huge retail laggard since trading as high as $52.50 on Aug. 22, 2018. The retailer beat earnings-per-share estimates when it reported earnings on Tues., Aug. 20 extending its winning streak to nine consecutive quarters. The stock opened above its semiannual pivot at the open on Aug. 21 and ended the week with an upgrade to neutral on its weekly chart.
The stock closed last week at $22.68 down 31.7% year to date and in bear market territory down 56.8% from its Aug. 22, 2018 high of $52.50. The stock set its 2019 low of $19.63 on Aug. 15 and is 15.5% above this low. The stock is cheap with a P/E ratio of 9.75 but does not offer a dividend, according to Macrotrends. Wells Fargo rates the stock a market perform but cut its price target to $25 from $28. Bank of America maintained a buy rating but lowered their price target to $28 from $33. My price target is its annual risky level at $29.04. The retailer has a positive outlook for sales for the upcoming holiday season.
The Daily Chart for Urban Outfitters
Courtesy of Refinitiv XENITH
The daily chart for Urban Outfitters shows that the stock has been below a “death cross” since Nov. 8, 2018 when the 50-day simple moving declined below the 200-day simple moving average indicating that lower prices lie ahead. Based upon my “death cross” guidelines investors should have reduced holdings at the 200-day SMA at $41.00 on Nov. 9. The stock closed at $33.20 on Dec. 31 which was an important input into my proprietary analytics. The annual pivot remains at $29.04 which lines up with the 200-day SMA at $29.04. The close of $22.75 on June 28 was an input to my analytics and its semiannual pivot remains at $21.80. The monthly value level at $17.15 and the quarterly risky level at $45.81 will expire this week. New monthly and quarterly levels will be based upon the close on Aug. 30.
The Weekly Chart for Urban Outfitters
Courtesy of Refinitiv XENITH
The weekly chart for Urban Outfitters will be upgraded to positive given follow-up buying this week. A close on Aug. 30 above its five-week modified moving average of $22.59 will shift the weekly chart to positive. This would target its 200-week simple moving average or “reversion to the mean” at $30.30. The 12x3x3 weekly slow stochastic ended last week at 14.74 and if it rises to above 20.00 the weekly chart will be positive. This reading was 9.34 during the week of Aug. 16 and since it was below 10.00 the stock was technically “too cheap to ignore.”
Trading Strategy: Buy weakness to the semiannual value level at $21.80 and reduce holdings on strength to its annual risky level at $29.04.
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, the latest 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 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 its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing 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 call a reading below 10.00 as being “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.