Marvell Gaps Higher and Fills the Gap - Here's How to Trade It

Buy Marvell on weakness to its semiannual pivot. It's a momentum stock, so employ a sell stop to protect gains or minimize losses.
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Marvell  (MRVL) - Get Report reported better-then-expected sales and earnings after Thursday's close. The stock gapped higher at Friday’s open, touching $32.96, an all-time intraday high.

The Bermuda communications-semiconductor company cited strong demand for networking products from data centers and 5G infrastructure. To read more details read this report as posted on TheStreet.com.

Shares of Marvell closed Thursday at $32.57, up 23% year to date and in bull-market territory nearly double its March 18 low of $16.45.

The stock set its all-time high of $32.96 at today’s open, then consolidated to a morning low of $31.55. Its semiannual pivot is the key level to hold at $30.29.

The stock is not for value investors as its p/e multiple is extremely elevated at 102 and its dividend is just 0.78%, according to Macrotrends.

The Daily Chart for Marvel

Daily Chrt for Marvell

Daily Chrt for Marvell

Courtesy of Refinitiv XENITH

Marvell had been above a golden cross confirmed on March 25, 2019, when the 50-day simple moving average rose above the 200-day simple moving average. Such a move indicates that higher prices will follow.

This tracked the stock to a high of $28.85 on Jan. 27. From this high the stock declined 43% to its March 18 low of $16.45.

A death cross formed on March 13 just before the low was set. This was a false signal as the stock on April 14 moved back above its 200-day SMA, which became support, now at $25.05.

The stock traded down to its annual value level at $19.40, at the low providing a buying opportunity on March 13.

The stock moved above its quarterly pivot at $22.88 on April 6 and gapped above its semiannual pivot at $30.29 today.

The Weekly Chart for Marvell

Weekly Chart for Marvell

Weekly Chart for Marvell

Courtesy of Refinitiv XENITH

The weekly chart for Marvell is positive but overbought, with the stock above its five-week modified moving average of $27.34. 

The stock is also above its 200-week simple moving average, or reversion to the mean, at $19.99. 

This average provided three buying opportunities since August 2016 – the weeks of Aug. 26, 2016, Dec. 28, 2018, and March 27.

The 12x3x3 weekly slow stochastic reading is projected to rise to 86.47 this week from 83.37 on May 22. 

This reading will likely be above 90 next week, putting the stock in an inflating parabolic formation. Beware that bubbles almost always pop.

Trading Strategy: Buy Marvell on weakness to its semiannual pivot at $30.29. Since this is a momentum stock, employ a sell stop to protect gains or minimize a loss.

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 on the March 31 close.

The monthly level for May was established based on the April 30 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 past 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.