Walgreens Boots Alliance, Inc (WBA) is the country's largest corner drug store, selling prescription and over-the-counter items with many aisles of a five-and-dime merchandise. The drugstore chain serves Americans living in rural U.S. and on Main Streets in major cities and their suburbs, and the company has a presence around the world.
Walgreens has been a component of the Dow Jones Industrial Average since replacing General Electric Company (GE) on June 26. Walgreens stock closed Wednesday, Dec. 19, at $73.29, up just 0.9% year to date and in correction territory at 15.1% below its 2018 high of $86.31 set on Dec. 4. Evan after this quick drop, the stock remains in bull market territory at 24.1% above its 2018 low of $59.07 set on June 28.
The pharmacy giant reported earnings before the opening bell this morning, and a negative reaction has the stock trading as low as $68.73 as of 1:00 p.m. The stock is thus in my buy zone between its 200-day simple moving average (SMA) at $69.79 and my quarterly value level at $67.21.
The daily chart for Walgreens
Walgreens began 2018 below its annual risky level at $86.20. The stock traded as high as $80.68 on Jan. 29 and then traded sideways to down and set its 2018 low of $59.07 on June 28 on a negative reaction to earnings and two days after joining the Dow 30. The stock began its 2018 bull run at this time and reached its second half risky level of $77.60 on Oct. 18. This is the lower of the two horizontal lines on the upper third of the chart. The bottom horizontal line is my quarterly value level for the fourth quarter at $67.21.
When the stock set its 2018 high of $86.31 on Dec. 4, it was just shy of the annual risky level of $86.80. My pivot for December is the horizontal line at $78.32. The stock broke below the pivots at $78.32 and $77.60 on Dec. 17. The catalyst for this was a downgrade by The Goldman Sachs Group, Inc. (GS) to a sell rating. This made it tough for Walgreens stock to see a strong performance following earnings this morning.
The weekly chart for Walgreens
The weekly chart for Walgreens is negative, with the stock below its five-week modified moving average of $77.37 and below its 200-week SMA of $79.11, which is also the "reversion to the mean." Note that the stock has been trending lower since setting its all-time intraday high of $87.30 during the week of Aug. 7, 2015.
The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 69.75 this week, down from 83.81 on Dec. 14. At the high, this reading was 91.89 – a warning of an "inflating parabolic bubble," which is the first signal to reduce holdings. Stochastics scale between 00.00 and 100.00, where a reading above 80.00 is overbought and a reading below 20.00 is oversold. When the reading is above 90.00, I call it an "inflating parabolic bubble," and when it falls below 10.00, I call the stock "too cheap to ignore."
Given these charts and analysis, investors should buy Walgreens shares on weakness into the zone of its 200-day simple moving average at $69.79 and down to my quarterly value level of $67.21. Reduce holdings on sell strength to the 200-week simple moving average at $79.11.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.