Navistar Reports Earnings With a History of Extreme Volatility That Can Be Traded

Buy Navistar on weakness to its monthly value level at $29.62 and sell strength to its semiannual risky level at $34.39. This is a viable trading range but beware that the weekly chart may be downgraded to negative this week.
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Navistar International (NAV) - Get Report reports quarterly earnings before the open on Tuesday, and the  manufacturer of commercial trucks, buses, defense vehicle and engines is expected to earn 97 cents a share. 

My call is to buy the stock on weakness to its monthly value level at $29.62 and sell strength to its semiannual risky level at $34.39, which is a viable trading range.

The stock closed last week at $32.27, up 24.4% year to date and in bull market territory 51.4% above its Aug. 28 low of $21.32. The stock is also in correction territory 18.3% below its March 4 high of $39.52.

Longer-Term Volatility Is Staggering

Navistar set its all-time intraday high of $79.05 back in June 2008, then plunged 80% to as low as $15.24 in November 2008. The stock than rallied 269% to its April 2011 high of $71.49. This was followed by a crash of 91% to its January 2016 low of $5.78. The subsequent rally from this low to its high of $47.73 into the week of Feb. 2, 2018, totaled 725%. This bull run is being consolidated in 2019.

This extreme volatility is why you need to track the volatility on its daily and weekly charts as this provides trading opportunities.

The Daily Chart for Navistar

The last 52 weeks have been extremely volatile.

The last 52 weeks have been extremely volatile.

Courtesy of Refinitiv XENITH

The daily chart for Navistar shows a rally up to $39.52 into March 4 followed by a decline to the Aug. 28 low of $21.32. Then came the rebound the stock is trading in today. 

The second-half semiannual risky level at $34.39 was tested on Nov. 4 as an opportunity to book profits. The monthly value level for December at $29.62 is the level at which to buy on weakness. The lowest horizontal line is the quarterly value level at $23.93.

The Weekly Chart for Navistar

A negative reaction to earnings may result in a negative weekly chart.

A negative reaction to earnings may result in a negative weekly chart.

Courtesy of Refinitiv XENITH

The weekly chart for Navistar ended last week positive but overbought with the stock above its five-week modified moving average of $31.91. 

The stock is above its 200-week simple moving average or “reversion to the mean” at $30.13. The stock has been above this moving average since the week of Oct. 25. 

The 12x3x3 weekly slow stochastic reading ended last week at 80.90 above the overbought threshold on 80.00. If this reading falls below 80.00 with a weekly close below $31.91, the weekly chart would become negative.

Trading Strategy: Buy weakness to monthly and quarterly value levels at $29.62 and $23.93, respectively, and reduce holdings on strength to its semiannual risky level at $34.39.

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 changes at the end of each month, the latest on Aug. 30. 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.”