Conagra Brands (CAG) - Get Report , the maker of processed and package foods for grocery stores, reports quarterly earnings before the open on Thurs., Sept. 26. The stock is consolidating a 51% bear market decline in 2019, but has moved sideways since setting its 2019 high of $31.29 on April 24. My call is to counter-trade a trading range by buying weakness to its 200-day simple moving average at $26.85 and selling strength to its semiannual and monthly risky levels at $31.12 and $32.51, respectively.
The stock closed Tuesday at $29.56, up 38.4% year to date and in bull market territory 46.2% above its Dec. 26 low of $20.22. The stock is 5.5% below its 2019 high of $31.29 set on April 24. Longer term, the stock set its all-time intraday high of $41.68 during the week of March 3, 2017 then declined by a bear market 51% to the Dec. 26 low of $20.22.
Analysts expect Conagra to show earnings of 40 cents a share when it reports before the opening bell Thurs., Sept. 26. The stock is reasonably priced with a P/E ratio of 14.83 and dividend yield of 2.85%, according to Macrotrends. It missed earnings-per-share estimates on June 27 and the stock dipped to $25.06.
The Chicago-based company recently previewed an expanded list of new food products being introduced in the first half of 2020, including innovations to Birds Eye Veggie Shreds and PAM Non-GMO Oil Cooking Sprays.
Among the firms covering the stock on FactSet, six have buy ratings and two have holds.
Some say that the company faces increasing costs of transportation, crops and packaging.
The Daily Chart for Conagra
Courtesy of Refinitiv XENITH
The daily chart for Conagra clearly shows that the stock is in a trading range from the April 24 high of $31.29 down to the June 27 low of $25.06. Its annual risky level is at $38.14, which appears unreachable. The quarterly value level at $26.49 is just below the 200-day simple moving average at $26.85. The semiannual and monthly risky levels are $31.12 and $32.51, respectively.
The Weekly Chart for Conagra
Courtesy of Refinitiv XENITH
The weekly chart for Conagra is positive with the stock above its five-week modified moving average of $29.20 and well below its 200-week simple moving average or "reversion to the mean" at $34.18. Note how the stock had been below the "reversion to the mean" since the week of Nov. 16. The 12x3x3 weekly slow stochastic reading is projected to rise to 77.19 this week up from 73.18 on Sept. 20. Note that at the end of December, this measure was at 8.81, below 10.00, making it "too cheap to ignore." Also note that as May began, the reading was 90.40, above 90.00, making it an "inflating parabolic bubble." The decline from the April 24 high of $31.29 to the June 27 low of $25.06 was nearly 20%.
Trading Strategy: Buy Conagra on weakness to its 200-day simple moving average at $26.85 and reduce holdings on strength to its semiannual and monthly risky levels at $31.12 and $32.51, respectively.
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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 annual level remains in play.
The weekly level changes each week. The monthly level changes at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June.
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 upon 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 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 call a reading below 10.00 as being "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.