Campbell Soup Rise on Earnings Tests Its Monthly Risky Level

Buy Cambell Soup on weakness to the semiannual pivot at $45.16 and reduce holdings on strength to the monthly and annual risky levels at $51.97 and $59.01, respectively.
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Campbell Soup  (CPB) - Get Report beat analysts’ second-quarter earnings forecast and raised its full-year guidance. On the report, the stock gapped higher at the open and traded up to $52.05 at its morning high. 

This strength tested its monthly risky level for March at $61.97, where investors should take profits.

The technicals are neutral

The daily chart shows the stock above a golden cross: The shares closed above their 200-day simple moving average at $45.14 after trading as low as $43.35 on Feb. 28. The stock on Monday popped above its semiannual pivot at $45.16, setting the stage for a positive earnings report. 

The weekly chart favors the strategy to book profits as its 12x3x3 weekly stochastic reading is declining.

The Camden, N.J., foods producer is benefiting from packaged-food demand as families stock up on non-perishables given the spread of the coronavirus. Here’s the coverage of the earnings report as compiled by TheStreet.com.

The stock is reasonably priced, with a p/e multiple of just under 19 and a dividend yield of 2.9%. The company also extended its earnings-per-share winning streak to six consecutive quarters.

The stock closed Tuesday at $47.88, down 3.1% year to date. Today’s high is a 52-week high. The stock is in bull-market territory, 49% above its Jan. 2, 2019, low of $32.04.

Longer term, the stock is consolidating a bear-market decline of 52% from its all-time intraday high of $67.89, set during the week of Jan. 8, 2016, to the Jan. 2, 2019, low. 

This volatility illustrates the importance of using daily and weekly charts as road maps on how to trade share-price volatility.

The Daily Chart for Campbell Soup

Daily Chart For Campbell Soup

Daily Chart For Campbell Soup

Courtesy of Refinitiv XENITH

The daily chart for Campbell shows that the stock has been above a golden cross since May 13, 2019, when the 50-day simple moving average rose above the 200-day simple moving average. 

This buy signal tracked the stock to its 52-week high set today following the positive reaction to earnings.

The guideline to buy tests of its 200-day SMA following a golden cross was successful at $37.71 on May 23, 2019. This moving average was a magnet during the coronavirus low set on Feb. 28.

The three horizontal lines are the stock's quarterly value level at $35.76, semiannual pivot at $45.16 and monthly risky level for March at $51.97, which was tested this morning.

The Weekly Chart for Campbell

Weekly Chart For Campbell Soup

Weekly Chart For Campbell Soup

Courtesy of Refinitiv XENITH

The weekly chart for Campbell is neutral, with the stock above its five-week modified moving average of $48.32 and above its 200-week simple moving average, or reversion to the mean, at $47.72. Note how this average has been a magnet since the week of Dec. 6, 2019.

The horizontal lines are the monthly risky level at $51.97 and annual risky level at $59.01.

The 12x3x3 weekly slow stochastic reading is projected to decline to 61.62 this week from 64.55 during the week of Feb. 28.

Trading Strategy: Buy weakness to the semiannual pivot at $45.16 and reduce holdings on strength to the monthly and annual risky levels at $51.97 and $59.01, respectively.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Monthly levels for March were established based on the Feb. 28 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. 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 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 its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based on back-testing 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 past 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.