The stock trades at a price-to-earnings multiple of just 8.09, according to Macrotrends, and its weekly slow stochastic reading was recently below 10.00 on a scale of 00 to 100, which is my technical call of being too cheap to ignore.
My call is to buy the stock below its monthly pivot at $39.35, then add to positions on weakness to its weekly value level at $34.09.
Shares of CBS set their all-time intraday high of $70.09 during the week of April 7, 2017, then declined 50% to an Oct. 31, 2019, low of $35.02.
The New York media company's stock ended last week at $38.11, down 13% year to date and 29% below its 2019 high of $53.71 set on July 16. CBS is 8.8% above its 2019 low.
CBS offers live sports, news and a robust lineup of TV shows. Viacom was a spinoff from CBS in 2006, and the combo will bring back names such as Nickelodeon and MTV. Viacom will report quarterly earnings on Thursday.
The Daily Chart for CBS
Courtesy of Refinitiv XENITH
The daily chart for CBS shows that the stock had a tradable bottom on Dec. 26. The close on Dec. 31 at $43.72 was an important input to my proprietary analytics and its annual risky level is well above the chart at $79.05. The close of $49.90 on June 28 was another important input to my analytics and its second half risky level at $52.88 was tested as an opportunity to book profits between July 11 and July 17. The close of $40.37 on Sept. 30 was an input to my analytics and its quarterly risky level is $41.10. The close of $36.04 on Oct. 31 was an input that resulted to its November risky level at $39.35. My weekly value level is $34.09.
The Weekly Chart for CBS
Courtesy of Refinitiv XENITH
The weekly chart for CBS is negative but extremely oversold, with the stock below its five-week modified moving average of $39.08 and well below the 200-week simple moving average or "reversion to the mean" at $54.62.
The 12x3x3 weekly slow stochastic reading ended last week at 10.63 up from 7.85 on Nov. 1. This reading below 10.00 during the week of Nov. 1 makes the stock technically too cheap to ignore.
Trading Strategy: Buy the stock below its monthly pivot at $39.35 and add to positions on weakness to the weekly value level at $34.09. Reduce holdings on strength to its semiannual risky level at $52.88. A quarterly pivot is at $41.10.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.
The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.
The quarterly level changes after the end of each quarter so the close on Sep. 30 established the level for the fourth quarter.
The close on Oct. 31 established the monthly level for November.
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.