Lowe's Stock Moves Higher on Spring Consumer Spending

Home improvement giant Lowe's Companies, Inc. (LOW) reports earnings before the opening bell on Wednesday as homeowners nationwide begi repairs and sprucing up gardening after rough winter weather. The stock closed May 21, at $87.39, down 6% year to date and up 7.7% from its May 1 low of $81.16. The stock is recovering from bear market territory and remains deep in correction territory at 19.8% below its 2018 high of $108.98 set on Jan. 25.

Analysts expect Lowe's to post earnings per share between $1.22 and $1.28 when the company reports results on May 23. Some have said that the cold winter weather could hurt Lowe's first quarter results. Others say that an improving job market, the housing recovery and expanding business with professional customers will help the bottom line. I question the strength in the housing market, but I believe that guidance will be positive. Keep in mind that homes built during the housing bubble between 2002 and 2006 show signs of aging. There are needs for repairs, and upgrades will likely increase store traffic as spring turns to summer. New home construction peaked at 1.8 million in mid-2006, which will likely increase demand for home improvement projects at Lowe's. (See also: Lowe's Stock: Analyzing 4 Key Suppliers.)

The daily chart for Lowe's

When Lowe's released its last earnings report on Feb. 28, it was for the quarter ending in January. The company missed earnings estimates, citing the weather, and the stock crashed from its annual pivot of $96.03 on Feb. 28 to its 200-day simple moving average of $83.96 on March 23. The 200-day has been a magnet since then, with the average now at $85.59. Since the beginning of the second quarter, my quarterly pivot at $86.61 has been a magnet, including Monday's low.

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The weekly chart for Lowe's

The weekly chart for Lowe’s is positive, with the stock above its five-week modified moving average of $86.77 and well above its 200-week simple moving average at $74.25, which is the "reversion to the mean," last tested during the week of Nov. 18, 2011, when the average was $22.29. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 27.98 this week, up from 19.57 on May 18 and rising above the oversold threshold of 20.00.

Given these charts and analysis, investors should buy Lowe's shares on on weakness to the 200-day simple moving average of $85.59 using my quarterly pivot as a magnet and reduce holdings on strength to my annual pivot at $96.03. (For more, see: Home Depot vs. Lowe's: The Home Improvement Battle.)