Thor Industries Beats Earnings Estimates; Time to Trade the Range

Buy Thor Industries on weakness to its 200-day simple moving average at $58.73 and to its monthly value level at $55.17. Book profits on strength to its weekly risky level at $76.51.
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Thor Industries (THO) - Get Report reported better-than-expected earnings per share before the open on Dec. 9. The recreational-vehicle maker thus beat estimates for a second consecutive quarter after a streak of five negative reports. 

The stock is trying to recover from a huge bear-market decline. 

My call is to buy the stock on weakness to its 200-day simple moving average at $58.73 and add to positions at its monthly value level at $55.17. Book profits on strength to its weekly risky level at $76.51.

A problem for the mobile-home and RV company has been an inability to beat revenue estimates over the past four quarters. \

The stock has been on the rebound in 2019, closing at $67.77 on Dec. 6. That’s a gain of 30% year to date and in bull-market territory 61% above its Aug. 15 low of $42.05. 

The stock is reasonably priced with a p/e multiple of 12.4 and a dividend yield of 2.44%, according to Macrotrends.

This recovery is during a bear-market decline of 74% from its all-time intraday high of $161.48 set in January 2018 to the Aug. 16 low of $42.05.

The Daily Chart for Thor Industries

Courtesy of Refinitiv XENITH

Courtesy of Refinitiv XENITH

The daily chart for Thor shows the bear-market decline since January 2018. A death cross was confirmed on April 5, 2018, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices would follow. 

The rebound since August 2019 resulted in a golden cross confirmed on Nov. 21 when the 50-day SMA rose above the 200-day SMA, indicating that higher prices would be coming. This should lead the stock higher to its weekly risky level at $76.51. 

When a golden cross is in play, it's time to buy weakness to the 200-day simple moving average, now at $58.73, with its value level for December at $55.17. Its quarterly value level is below the chart at $37. The annual and semiannual risky levels are $96.79 and $108.71.

The Weekly Chart for Thor Industries

Courtesy of Refinitiv XENITH

Courtesy of Refinitiv XENITH

The weekly chart for Thor is positive but overbought, with the stock above its five-week modified moving average of $64.31. 

The stock is below its 200-week simple moving average, or reversion to the mean, at $86.99, which is the upside potential into 2020. The stock has been below this moving average since the week of Sept. 28, 2018. 

The 12x3x3 weekly slow stochastic reading is projected to rise to 86.47 this week from 84.28 on Dec. 6. Note that this reading was 6.4 at the end of 2018, which made the stock technically too cheap to ignore and correctly predicted a solid 2019 for the stock.

Trading Strategy: Buy weakness to the 200-day SMA at $58.73 and the monthly value level at $55.1. Reduce holdings on strength to the weekly risky level at $76.51.

Value levels and risky levels are based upon the past nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.

The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.

The quarterly level changes after the end of each quarter so the close on Sep. 30 established the level for the fourth quarter.

The close on Nov. 29 established the monthly level for December.

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.

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.”