Shares of American luggage and handbag design retailer Vera Bradley, Inc. (VRA) had been in recovery mode following a pop higher on March 13 on a positive reaction to earnings. The stock set its 2019 high of $14.51 on March 15 and then faded lower. When the luxury retailer reported earnings on June 5, the stock popped then dropped, trading as high as $12.34 before declining to $10.18 on June 6.
The stock closed Monday, June 10, at $11.22, up 30.9% year to date and in bull market territory at 41.3% above its Dec. 27 low of $7.94. The stock is also in bear market territory at 22.7% below its March 15 high at $14.51. There are many stocks that have similar performance statistics as Vera Bradley. From its Sept. 10 high of $17.38 to its Dec. 27 low of $7.94, the stock crashed by 54%.
Vera Bradley offered guidance that was in line with Wall Street expectations. More importantly, the company complained about Chinese tariffs, but comments were mixed. This explains the stock’s pop and drop performance following earnings. The stock is not cheap, as its P/E ratio is 19.07, and the company does not offer a dividend, according to Macrotrends.
The daily chart for Vera Bradley
The daily chart for Vera Bradley clearly shows the bear market decline of 54% from the Sept. 10 high to the Dec. 27 low. The chart also shows the pop higher on the positive reaction to earnings on March 13. Since then, the stock has been sliding down its 200-day simple moving average, which is now at $11.82. The stock is well below its quarterly risky level at $14.19.
The weekly chart for Vera Bradley
The weekly chart for Vera Bradley will be negative if the stock ends this week below its five-week modified moving average of $11.48 and below its 200-week simple moving average, or “reversion to the mean,” at $12.17. The retailer’s stock has been below its “reversion to the mean” since the week of May 10. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week declining to 35.18, down from 39.93 on June 7.
Trading strategy: Buy Vera Bradley stock on weakness to its monthly value level at $6.68 and reduce holdings on strength to its quarterly risky level at $14.19.
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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level changed at the end of each month. 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. 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.
The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.