Kimberly Clark (KMB) - Get Kimberly-Clark Corporation Report stock slumped Monday on weaker-than-expected earnings Monday, and over the long term it's likely to continue trading lower. Later, we'll discuss how to use stock options to profit from this stock's trajectory.
First, however, let's review the fundamental and technical picture for this stock.
The company reported adjusted earnings per share Monday of $1.52, missing the average analyst estimate by 2 cents. Revenue of $4.59 billion missed expectations for $4.73 billion.
Kimberly Clark's net income fell dramatically in 2014 and again in 2015, and revenue decreased in 2015. These trends are not encouraging. The stock's price-to-earnings ratio spiked higher last year but now is at 21, which is less than the average P/E for the S&P 500 of 24. The company has been taking on more long-term debt, which stood at $6.17 billion at the end of 2015 but increased to $6.97 billion as of the end of June.
The current chart reveals an interesting and contradictory set of technical signals.
The volume spike and momentum both point to a short-term reversal following the stock's decline Monday of $5.67, or 4.7%. The price dropped far below the lower Bollinger Band. This points to a likely bounce back above the band. A bearish channel points to limited bullish potential, however. This channel is defined by the lower Bollinger Band as declining support and by the t-line as falling resistance. The t-line, an eight-day exponential moving average, sets up a very strong signaling mechanism. As long as the stock's price continues closing below the t-line, the bearish trend will continue. A reversal is not signaled until the price moves above the t-line for two or more consecutive sessions.
So in the short term, expect the stock's price to jump back into the channel range above $116.40 but below $119. After that, the outlook for the stock is bearish.
Wait for the stock's price to return back above the lower Bollinger Band. Then consider the Nov. 18 options, which expire in 25 days. The Nov. 18 put option with a 115 strike closed at an ask price of 2.75. Including trading fees, you can purchase this option for $284. The break-even level is $112.16 per share, or 1.75 points below Monday's close. That could be too far to reasonably expect the stock price to move. However, once price moves back into the range between the lower Bollinger Band and the t-line, take another look at puts with the closest strike price.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
Besides blogging atTheStreet.com,Michael Thomsett alsoblogs atOptions Money Maker,the Top Advisor's Corner atStockcharts.com, andSeeking Alpha.He has been trading options for 35 years and has published books with Palgrave Macmillan, Wiley, FT Press and Amacom, among other publishers.He currently is working on a new book on the topic of options math, to be published by Palgrave Macmillan in 2017.