McCormick (MKC) - Get Report had been a momentum stock since holding is 200-week simple moving average back during the week of Feb. 5, 2010, when the average was $36.26. That changed after it reached an all-time intraday high of $107.84 set on July 5, once investors calmed down following the company's earnings June 30.
Since setting this high the stock has been declining and the stock traded as low as $95.10 on Sept. 16, which was a test of the 200-day simple moving average then at $95.22. The weekly chart for McCormick has been negative since the week of Sept. 16 and is now nearly oversold.
Analysts expect the spice products company to earn 94 cents a share when it reports earnings before the opening bell on Friday. Deutsche Bank gives the stock a buy rating with a price target of $112. McCormick is a heavily shorted stock and a positive reaction to earnings could result in a short squeeze.
Does the stock have enough spice to regain its momentum? Here's the daily chart.
Courtesy of MetaStock Xenith
McCormick stock trades close to $98, up 14.3% year to date and 9.3% below its July 3 high of $107.84. The stock is in bull market territory 24.6% above its Jan. 20 low of $78.45.
Look at the lower left of the daily chart. Note that the 50-day simple moving average (in blue) moved above the 200-day simple moving average (in green) on Dec. 2, 2014, in what technicians call a "golden cross". This positive technical formation indicates that higher prices lie ahead. It also indicates that buying weakness to the 200-day simple moving average is a prudent trading strategy.
Notice the many times that weakness held the 200-day simple moving average: on Feb. 2, 2015, when the average was $70.91; on March 19 when the average was $71.36; on Aug, 24, 2015, when the average was $76.63; on Jan. 19 when the average was $81.36; and as recently as Sept. 19, with the average of $95.27.
The company reports earnings with the stock trading above its 200-day simple moving average of $95.66 and below its 50-day simple moving average of $100.41.
Here's the weekly chart.
Courtesy of MetaStock Xenith
The weekly chart shows a red line through the price bars. which is the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average considered the "reversion to the mean."
The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicates overbought and readings below 20.00 indicates oversold. A negative weekly chart shows the stock below its key weekly moving average with weekly momentum declining below 80.00 in a trend towards 20.00.
The weekly chart for McCormick is negative with the stock below its key weekly moving average of $98.86 and well above the 200-week simple moving average of $77.32, last tested during the week of Feb. 5, 2010 when this "reversion to the mean" was at $36.26. The weekly momentum reading is projected to decline to 20.77 this week down from 24.31 on Sept. 23, approaching the oversold threshold of 20.00.
Investors looking to buy McCormick should consider doing so on weakness to $82.71, which is a key level on technical charts until the end of 2016.
Investors looking to reduce holdings should consider selling strength to $101.36, which is also a key level on technical charts until the end of 2016.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.