Walgreens Boots Alliance, Inc. (WBA) is a component of the Dow Jones Industrial Average that became technically "too cheap to ignore" and is now also "too cheap to ignore" fundamentally. The pharmacy giant released its latest earnings report on June 27 and beat analysts' estimates. The stock traded higher to $56.95 on July 11 and then faded to its quarterly pivot at $52.62.
The stock closed last week at $52.79, down 22.5% year to date and in bear market territory at 38.8% below its 52-week intraday high at $86.31 set on Dec. 4. Walgreens shares are up 7.1% since setting a 52-week low of $49.31 on May 31. The stock set its all-time intraday high of $97.30 during the week of Aug. 7, 2015, just as Amazon.com, Inc. (AMZN) started to breathe down the company's neck with pharmacy solutions of its own.
Walgreens remains the country's largest corner drugstore, selling prescription and over-the-counter drugs as well as many aisles of a typical five-and-dime merchandise. The drugstore chain serves Americans living in the rural United States and on Main Streets in major cities and suburbs around the world.
The daily chart for Walgreens
The daily chart for Walgreens shows the formation of a "death cross" on March 1, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices lie ahead. The huge price gap lower on April 2 was caused by disappointing earnings. The downside continued until the 2019 low was set on May 31 at $49.31.
The monthly value level for August is below the chart at $35.69. The third quarter pivot at $52. 62 was a magnet between Aug. 5 and Aug. 9. The semiannual risky level for the second half of 2019 is $57.74. The annual risky level remains well above the chart at $90.13. The risky level for June is at $58.60, with a second quarter pivot at $55.04, which was a magnet between April 2 and April 18. The stock is below its 50-day and 200-day simple moving averages at $53.58 and $63.96, respectively.
The weekly chart for Walgreens
The weekly chart for Walgreens is negative, with the stock below its five-week modified moving average of $53.97 and well below its 200-week simple moving average, or "reversion to the mean," at $74.49. The 12 x 3 x 3 weekly slow stochastic reading ended last week slipping to 64.49, down from 67.09 on Aug. 2. At the May 31 low, this reading was just 4.38, well below 10.00 as a technical indicator showing the stock to be "too cheap to ignore."
Trading strategy: Buy Walgreens stock at its quarterly pivot at $52.62 and reduce holding on strength to its semiannual risky level at $57.74.
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, most recently 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 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. 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 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.