Procter & Gamble Co. (PG) - Get Report is the largest stock in the consumer staples sector. It a component of the Dow Jones Industrial Average. whose shares were trading at an all-time intraday high Thursday. My call is to reduce holdings with the stock above its annual pivot at $101.52. The sell zone stretches to monthly and weekly risky levels at $103.22 and $105.63, respectively.
P&G has been on a strong momentum run and has beaten earnings estimates for 21 consecutive quarters but it's not cheap with a P/E of 23.90 and dividend yield of 2.78%, according to Macrotrends. In addition, the stock has a 12x3x3 weekly slow stochastic reading of 91.32, well below the overbought threshold of 80.00 and the reading above 90.00 makes the stock an "inflating parabolic bubble," which is usually followed by a selloff of 10% to 20%.
P&G closed Wednesday at $102.90, up 11.9% year to date and up 18.6% from its Dec. 26 low of $86.74. The stock declined 10% to this low from its Dec. 14 high of $96.89. Thursday morning Morgan Stanley reiterated its overweight rating on the stock projecting strong organic sales growth. It raised its price target to $111. My call is based on the technical charts and when I see the patterns shown today, it's a prudent strategy to reduce holdings.
The Daily Chart for Procter & Gamble
Courtesy of Refinitiv XENITH
Procter & Gamble has been trading above a "golden cross" since Sept. 12 when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. Given this signal investors were able to buy the stock on weakness to the 200-day SMA at $80.35 on Oct. 11. This was just before a positive reaction to earnings released on Oct. 19. This led to the Dec. 14 high at $96.89.
The decline to $55.24 on Dec. 20 was a correction of 10%. The close of $91.92 on Dec. 31 was an important input to my proprietary analytics and resulted in a semiannual value level at $79.43, a quarterly value level at $90.20 and annual risky level at $101.52.
The close of $98.55 on Feb. 28 was input into the analytics and resulted in a monthly risky level at $103.22. My weekly risky level is $105.63. Note how the quarterly value level at $90.20 provided a buying opportunity between Jan. 2 and Jan. 22. This was just before a positive reaction to earnings on Jan. 23.
The Weekly Chart for Procter & Gamble
Courtesy of Refinitiv XENITH
The weekly chart for Procter & Gamble is positive but overbought with the stock above its five-week modified moving average at $99.67. The stock is above its 200-week simple moving average or "reversion to the mean" at $84.63, last crossed during the week of Oct. 26. The 12x3x3 weekly slow stochastic reading is projected to end this week at 91.21 well above the overbought threshold of 80.00 and above 90.00, making the stock an "inflating parabolic bubble."
Trading Strategy: Buy weakness to the 200-day simple moving average at $88.48 and reduce holdings with the stock among its annual pivot at $101.52 and monthly and weekly risky levels at $103.22 and $105.63, respectively.
How to Use Value Levels and Risky Levels:
Value levels and risky levels are based on the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels were based on the closes on Dec. 31. The original quarterly, semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January and February. 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 on 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 vs. 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."
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Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.