Campbell Soup Falls After Earnings Beat – Here's the Trade

Buy Campbell Soup on weakness to its 200-week simple moving average and reduce holdings on strength to its weekly risky level.
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Campbell Soup  (CPB) - Get Report beat earnings estimates on June 3 due to demand during the pandemic - and the stock fell. 

The stock opened at $51.96 then declined toward its 50-day simple moving average at $49.29, with the stock above a golden cross.

The Camden, N.J., foods company declined on the theme that the economy is on the mend, which should slow demand during the pandemic. For more details on this earnings report check out the coverage on TheStreet.com.

The stock opened Wednesday at $51.96, up 5.1% year to date and in bull-market territory 28% above its March 26 low of $40.70. 

CPB is also 9.7% below its all-time intraday high of $57.54 set on March 17.

The stock has a p/e multiple of almost 21 and a dividend yield of 2.7%, according to Macrotrends.

The Daily Chart for Campbell Soup

Daily Chart for Campbell Soup

Daily Chart for Campbell Soup

Courtesy of Refinitiv XENITH

Campbell Soup has been above a golden cross since May 11, 2019, when the 50-day simple moving average rose above the 200-day SMA. Such a move indicates that higher prices will follow.

The stock followed the 50-day SMA higher until extreme volatility began on Feb. 19.

The stock dipped below its 50-day SMA on Feb. 19, then below its 200-day SMA on Feb. 28.

The stock popped higher on a positive reaction to earnings released on March 4. This was short-lived, as the stock dropped from $53.83 on March 5 to its 200-day SMA at $45.60 on March 13.

Then the stock popped to its all-time high of $57.54 on March 17. 

On March 20, the stock was back below its 200-day SMA at $45.88 to the March 26 low of $40.70.

On the rebound, the stock moved back above its 200-day SMA on April 13. It then traded as high as $53.92 on May 15 before declining again to the 200-day SMA at $47.55 on May 21.

On June 3, the stock failed to hold its weekly pivot at $51.44 and its monthly value level at $49.50.

The Weekly Chart for Campbell

Weekly Chart for Campbell Soup

Weekly Chart for Campbell Soup

Courtesy of Refinitiv XENITH

The weekly chart for Campbell will be negative given a close this week below its five-week modified moving average of $49.94.

The stock is above its 200-week simple moving average, or reversion to the mean, at $46.81. This average has been a magnet since the week of Dec. 6, 2019.

The 12x3x3 weekly slow stochastic reading is projected to end this week declining to 57.16 from 59.58 on May 29.

Trading Strategy: Buy Campbell Soup on weakness to its 200-week simple moving average at $46.81 and reduce holdings on strength to its weekly risky level at $51.44. Its monthly pivot at $49.50 remains a magnet.

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.

The second quarter 2020 level was established based upon the March 31 close.

The monthly level for June was established based upon the May 29 close.

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.