Retail giant Walmart Inc. (WMT) announced that it beat earnings estimates before the opening bell on May 19. The stock gapped higher at the open to $131.99 and then ended last week at $124.33, below its semiannual pivot at $126.15. The stock is above a golden cross on its daily chart. The weekly chart is neutral.

Walmart stock is up 4.6% year to date and in bull market territory at 21.9% above its March 16 low of $102. The stock is also 6.8% below its all-time intraday high of $133.38 set on April 20.

Walmart had a winning streak of beating earnings per share estimates in seven consecutive quarters. This came to an end on Feb. 18 when the retail giant missed expectations. The stock a component of the Dow Jones Industrial Average and is not cheap. Its P/E ratio is 25.05 with a dividend yield of 1.74%, according to Macrotrends.

The daily chart for Walmart

Daily chart showing the share price performance of Walmart Inc. (WMT)
Refinitiv XENITH

The daily chart for Walmart goes back 52 weeks. The stock had been above a golden cross since Sept. 17, 2018, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. This buy signal ended with a false death cross that occurred between March 25 and April 15.

Walmart stock became extremely volatile since setting its all-time high at $133.38 on April 20. The stock dropped to its quarterly pivot at $121.14 and then rebounded to $131.99 on the earnings beat.

Walmart ended last week at $124.33, between its quarterly pivot at $121.14 and its semiannual pivot at $126.15. The 50-day and 200-day simple moving averages ended last week at $122.24 and $118.16, respectively.

The weekly chart for Walmart

Weekly chart showing the share price performance of Walmart Inc. (WMT)
Refinitiv XENITH

The weekly chart for Walmart is neutral, with the stock above its five-week modified moving average at $121.12. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $93.40, last tested during the week of July 14, 2017, when the average was $73.34.

The 12 x 3 x 3 weekly slow stochastic reading ended last week falling to 72.25, down from 72.67 on May 15. In October 2019, this reading was above the 90.00 threshold, putting the stock in an "inflating parabolic bubble" formation, which contributed to the downside volatility.

Trading strategy: Buy Walmart stock on weakness to its quarterly and annual pivots at $121.14 and $116.42, respectively, and reduce holdings on strength to its semiannual pivot at $126.15.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input 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, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are 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 that is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered as being "too cheap to ignore," which typically is followed by gains 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.