Walgreens Stock Slumps on Earnings, Holds Key Level

Walgreens Boots Alliance, Inc. (WBA) missed quarterly earnings estimates this morning, and its shares declined by more than 12% to a multi-year low of $55.00. The good news for investors is that the stock held its second quarter value level at $55.04 as a buying opportunity.

On Monday, April 1, the stock closed at $63.49, down 7.1% year to date and in bear market territory at 26.4% below its 2018 high of $86.31 set on Dec. 4. Walgreens remains the country's largest corner drug store, selling prescription and over-the-counter drugs along with many aisles of a typical five-and-dime merchandise. The drugstore chain serves those living in the rural U.S. and on Main Streets in major cities and suburbs, and it has a presence around the world.

Walgreens is the newest stock in the Dow Jones Industrial Average, replacing General Electric Company (GE) in 2018. Walgreens stock is fundamentally cheap with a P/E ratio of 10.24 and a dividend yield of 2.77%, according to Macrotrends. The drug store chain is facing deflated prices for prescription drugs including generics as well as the cost of refurbishing the in-store experience. It also lowered forward guidance as same-store sales fell by 3.8%. Walgreens is implementing a cost-cutting program with a $1.5 billion budget through fiscal 2022.

The daily chart for Walgreens

Walgreens stock has been below a "death cross" since March 1, providing a warning. A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving and indicates that lower prices lie ahead. This bearish signal was in place as the pharmacy operator reported earnings before the open today.

The close of $68.33 on Dec. 31 was an input to my proprietary analytics. Semiannual and annual risky levels remain at $75.63 and $90.13, respectively. The March 29 close at $63.27 was the latest input to my analytics, and this resulted in a monthly risky level at $75.54, a quarterly value level at $55.04 and a weekly pivot at $59.69. Tuesday's low held the quarterly value level so far.

The weekly chart for Walgreens

The weekly chart for Walgreens is negative but oversold, with the stock below its five-week modified moving average of $63.79. The stock is well below its 200-week simple moving average, or "reversion to the mean," at $77.73. The 12 x 3 x 3 weekly slow stochastic reading is projected to slump to 18.38 this week, falling below the oversold threshold of 20.00.

Trading strategy: Buy Walgreens stock on weakness to its quarterly value level at $55.04 and reduce holdings on strength to the weekly pivot at $59.69 and then to the 200-day simple moving average at $70.83.

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 set of 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.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.