Trendy lifestyle retailer Urban Outfitters, Inc. (URBN) has been a huge retail laggard since trading as high as $52.50 on Aug. 22, 2018. From this high, the stock is deep into bear market territory, down 53.6%.
The retailer beat earnings per share estimates when it reported results on Tuesday, May 21, extending its winning streak to eight consecutive quarters. The company announced that it would launch a women's apparel rental service that analysts say will hit its second quarter results.
The stock closed Wednesday, May 22, at $24.34, down 26.7% year to date and in bear market territory at 53.6% below its Aug. 22 high of $52.50. Urban Outfitters shares set a 52-week intraday low of $24.06 on May 22. The stock is cheap with a P/E ratio of 10.07 but does not offer a dividend, according to Macrotrends.
The daily chart for Urban Outfitters
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 average (SMA) declined below the 200-day SMA, 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, with a semiannual pivot at $26.71. The close of $29.64 on March 29 was also an input to my analytics, resulting in a quarterly risky level at $41.22. The April 30 close of $29.73 was the most recent input to my analytics, and the value level for May is $21.05.
The weekly chart for Urban Outfitters
The weekly chart for Urban Outfitters is negative, with the stock below its five-week modified moving average of $28.39 and below its 200-week simple moving average, or "reversion to the mean," at $30.81. The 12 x 3 x 3 weekly slow stochastic reading is expected to end this week at 22.64, down from 30.21 on May 17.
Trading strategy: Buy Urban Outfitters stock on weakness to the monthly value level at $21.05 and reduce holdings on strength to its annual pivot at $29.04. Its semiannual pivot is $26.71.
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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March.
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.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.