The stock gapped higher at the open with the Abbott Park, Ill., medical-products maker's shares trading as high as $84.40.
This was between its semiannual and annual risky levels at $82.77 and $84.46. And that's where profits should be taken.
The stock subsequently declined to $78.47, creating a price gap to its March 27 high of $77.50.
Abbott Labs makes medical devices with a focus on diabetes monitoring meters.
The company's receipt of an emergency clearance from the Food and Drug Administration for a coronavirus test kit is a positive in the efforts to identify people suffering from Covid-19. Here’s the analysis prepared by TheStreet.com.
The stock opened at $82.83 this morning, marking the shares down 4.6% year to date.
The stock is in correction territory 10% below its all-time intraday high of $92.45 set on Jan. 22. The stock is also in bull-market territory 32% above its March 23 low of $62.82.
The stock is not cheap, trading at a p/e multiple of 23 with a dividend yield of 1.93%, according to Macrotrends.
The daily chart for Abbott Labs
Courtesy of Refinitiv XENITH
Abbott Labs had been above a golden cross since Feb. 24, 2017. This occurred when the 50-day simple moving average rose above its 200-day simple moving average. Such a move indicates that higher prices will follow. This buy signal was still in play at the all-time high of $92.45 set on Jan. 22.
This buy signal was reversed by a death cross formation confirmed on March 24. This was when the 50-day SMA fell below the 200-day SMA, signaling that lower prices would follow.
This signal occurred a day after the stock traded as low as $62.82 on March 23. This indicated that the stock was a sell on strength to the 200-day SMA at $84.07, which happened this morning.
The stock gapped below its 50-day SMA on Feb. 24, then fell below its 200-day SMA on Feb. 25. The stock has been below its annual pivot at $84.46 since then and was nearly tested at today’s open.
The semiannual pivot at $82.77 has also been a magnet since Feb. 25.
This week’s value level is $73.42.
The weekly chart for Abbott Labs
Courtesy of Refinitiv XENITH
The weekly chart for Abbott Labs ended last week negative, but the stock is now above its five-week modified moving average of $79.84. A close this week above this moving average will upgrade the chart to neutral.
At last week’s low the stock tested and held its 200-week simple moving average, or reversion to the mean, at $62.32 as a buying opportunity.
The 12x3x3 weekly slow stochastic reading is projected to slip to 35.9 this week from 36.37 on March 27.
Trading Strategy: Buy weakness to the weekly value level at $73.42 and reduce holdings on strength to the semiannual and annual pivots at $82.77 and $84.46, respectively.
How to use my value levels and risky levels:
The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.
Second-quarter 2020 and monthly levels for April will be established based on the March 31 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 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.
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.