J.M. Smucker (SJM) - Get Report , the maker of jam, peanut butter, and other popular edibles, reports quarterly earnings before the opening bell on Tues., Aug. 27. This stock is in position for gains and should be bought at its 200-day simple moving average at $111.90. The stock is above a "golden cross" on its daily chart, which makes it a buy on weakness to this moving average. The weekly chart is negative but oversold and a positive reaction to earnings should have the stock above its five-week modified moving average at $114.13 on a positive reaction to earnings.
The stock ended last week at $111.20, up 18.9% year to date and in bull market territory 21.8% above its 52-week low of $91.32 set on Dec. 27. The stock is also in correction territory 13.4% below its 2019 high of $128.43, set on May 20. Longer term, the stock is consolidating a bear market decline of 42% from its all-time intraday high of $157.30 set during the week of Aug. 5, 2016 to the Dec. 27 low.
Smucker is expected to earn $1.75 per share when it reports earnings before the open on Aug. 27. The stock is relatively cheap fundamentally with a P/E ratio of 13.74 and dividend yield of 3.09%, according to Macrotrends. Wall Street expects a year-over-year decline in earnings on lower revenue, which makes forward guidance the key to earnings. The diversified portfolio of products and their risk to the trade war with China will be an issue. The stock is a value play, given the P/E ratio and dividend yield. The company beat estimates the past two quarters after missing the prior three quarters, so this turnaround trend could be your friend.
The Daily Chart for Smucker
Courtesy of Refinitiv XENITH
The daily chart for Smucker shows that the stock has been above a "golden cross" since April 4, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. This tracked the stock to its 2019 high of $128.43 set on May 20. The stock has been tracking its 200-day SMA higher since July 31. The stock is trading between its quarterly value level at $104.70 and its monthly risky level at $118.28. These levels expire at the end of this week, which makes it key that the stock holds its 200-day simple moving average at $111.90.
The Weekly Chart for Smucker
Courtesy of Refinitiv XENITH
The weekly chart for Smucker is negative but oversold, with the stock below its five-week modified moving average of $114.13 and below its 200-week simple moving average or "reversion to the mean" at $121.05. Note the stock has been below its "reversion to the mean" since the week of June 28. The 12x3x3 weekly slow stochastic reading is projected to end the week at 19.62, just below the oversold threshold of 20.00. A close this week above $114.16 would result in a positive weekly chart. Note that the reading at the May 20 high was 96.64, well above the 90.00 threshold, which made the stock an "inflating parabolic bubble." From the May 20 high of $128.43 to the Aug. 7 low of $109.01, the bubble popped by 15%.
Trading Strategy: Buy weakness to the 200-day simple moving average at $111.90 and reduce holdings on strength to its "reversion to the mean" at $121.05. Semiannual and annual risky levels at $131.09 and $141.38, 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 was changed at the end of each month, the latest on July 31. 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.