Engineering and construction services company Jacobs Engineering Group (JEC - Get Report) beat earnings estimates before the open on Mon., Aug. 5 and weakness provides a buying opportunity. Start a long position at the market, then add to the portfolio holding on weakness to its 200-day simple moving average at $73.08.
With Congress on recess until September, there will be a major delay in discussions about infrastructure spending plans. Jacobs is a play on this growth opportunity, but downside risk is part of the waiting game.
The stock has had a strong run so far in 2019 ending last week with a gain of 38.4% year to date and in bull market territory 44.4% above its Dec. 26 low of $55.17. The stock set its 2019 high of $85.85 on July 17 and slipped 7.2% since then.
The stock has market-neutral fundamentals with a P/E ratio of 18.19 and a dividend yield of 0.81%, according to Macrotrend.
The stock had a strong momentum run before the great recession as its all-time intraday high of $101.29 was set in January 2008. To regain momentum Congress must pass an infrastructure spending bill that can be approved by President Trump.
Jacobs not only beat earnings estimates, it also raised guidance and its order backlog rose by 8% to $22.5 billion. In addition, the company is amid a share buyback program. It seems that the company is positioned to survive a delay in orders for infrastructure spending.
The Daily Chart for Jacobs
Courtesy of Refinitiv XENITH
The daily chart for Jacobs shows that the stock has been above a "golden cross" since March 26 when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. The close of $58.45 on Dec. 31 was an important input to my proprietary analytics and its annual value level remains at $59.19 as a buy level crossed on Jan. 7. The close of $84.39 on June 28 was another important input to my analytics. This resulted in semiannual and quarterly pivots at $83.79 and $84.68, respectively. These levels failed to hold on July 31 providing a buying opportunity down to Monday's low of $77.56. The close of $82.51 on July 31 was an input to my analytics and the stock is below its monthly for August at $84.30. The 50-day and 200-day simple moving averages are $81.63 and $73.08, respectively.
The Weekly Chart for Jacobs
Courtesy of Refinitiv XENITH
The weekly chart for Jacobs is neutral as the stock trades back and forth around its five-week modified moving average of $82.00. The stock is well above its 200-week simple moving average or "reversion to the mean" at $59.23. The 12x3x3 weekly slow stochastic is projected to slip to 81.24 this week down from 85.68 on Aug. 2 still above the overbought threshold of 80.00. At the July 17 high, this reading was 90.29 above the 90.00 threshold as an "inflating parabolic bubble," which is a reason to be cautious about where to add to positions.
Trading Strategy: Add to a core long position on weakness to the 200-day simple moving average at $73.08. Traders can reduce holdings on strength to semiannual, monthly and quarterly risky levels at $83.79, $84.30 and $84.68, 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."