Bed Bath & Beyond Reports Earnings as a 'Golden Cross' Forms

Bed Bath & Beyond Inc. (BBBY) is set to report earnings after the closing bell this afternoon as a "golden cross" forms on its daily chart. In response, the stock is trading to a fresh 2019 high.

The weekly chart shows that April began with renewed upward momentum. Bed Bath & Beyond stock closed Tuesday, April 9, at $18.47, up 63.2% year to date and in bull market territory at 76.6% above its Dec. 24 low of $10.46. The stock set its 52-week high of $21.44 on July 9 and is still in correction territory at 13.9% below this high.

When the retailer was set to release its prior earnings report on Jan. 9, I described the stock as being "too cheap to ignore," and that remains the case today. The stock has a P/E ratio of 7.96 and a dividend of 3.44%, according to Macrotrends. At the end of 2018, the stock had a weekly stochastic reading of 8.23, below 10.00 on a scale of 00.00 to 100.00 – making the stock technically "too cheap to ignore."

Bed Bath & Beyond is a major retailer of products for the home, including bed sheets, bath soaps and beyond to kitchenware. Analysts expect the company to post earnings per share of $1.11 to $1.12 when it releases results after the close. Same-store sales and guidance on foot traffic will likely determine whether the stock reacts positively or negatively following earnings. Bank of America Merrill Lynch has a buy rating on the stock and expects an earnings beat today.

The daily chart for Bed Bath & Beyond

Shares of Bed Bath & Beyond bottomed on Dec. 24 and have been above the 200-day simple moving average at $15.83 since gapping above it on March 26. The 50-day simple moving average has been on the rise since the earnings beat on Jan. 9. Finally, on April 9, the 50-day rose above the 200-day, confirming a "golden cross" and signaling that higher prices lie ahead. The stock is trading at new 2019 highs just before its earnings report due out after the close today.

The stock closed Dec. 31 at $11.32, which was an important input to my proprietary analytics. I show an annual risky level at $40.60, which marks the upside potential for the shares by the end of 2019. The close of $16.09 on March 29 was the latest input to my analytics and resulted in a monthly value level that lags at $11.64.

The weekly chart for Bed Bath & Beyond

The weekly chart for Bed Bath & Beyond is positive, with the stock above its five-week modified moving average of $16.55. The stock is well below its 200-week simple moving average, or "reversion to the mean," at $34.41, which is an upside target. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week rising to 78.94, up from 71.34 on April 5. When the stock was setting its Christmas low, this reading was below 10.00, which is an indication that the stock is technically "too cheap to ignore." 

Trading strategy: Buy Bed Bath & Beyond shares on weakness to the 200-day simple moving average at $15.83 and reduce holdings on strength to the 200-week simple moving average at $34.41.

How to use my value levels and risky levels: Value levels and risky levels are based on the last nine weekly, monthly, quarterly, semiannual and annual closes. The first levels were based on 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 and March. 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 already. 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.