United Technologies Beats on Earnings - Here's How to Trade It

Book profits on UTX on strength to its semiannual pivot at $153.50 up to its weekly risky level at $154.29. The downside risk is to its first-quarter value level at $137.38.
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United Technologies  beat earnings-per-share estimates, but the Dow industrials component also noted headwinds resulting from the grounded Boeing  (BA) - Get Report 737 MAX.

My call is to book profits on strength to the stock's semiannual pivot at $153.50 up to its weekly risky level at $154.29. The downside risk is to its first-quarter value level at $137.38.

The earnings results were helped by strength in aerospace and a return to profitability by its Otis elevator and Carrier air conditioning businesses. Here’s a link to the earnings coverage provided by TheStreet.com.

A major reason to book profits now is that later this year you will not know what you are owning. By the end of February, the European Union is expected to rule on UTX's proposed $120 billion merger with Raytheon  (RTN) - Get Report.

Assuming that U.S. and EU regulators clear the deal, the new company will be called Raytheon Technologies. Otis and Carrier will be separate companies. The new company will be a premier technology company as an aerospace and defense contractor.

Raytheon Technologies will be the second largest aerospace and defense contractor. 

I predict that the new component of the Dow Jones Industrial Average will trade under the ticker RTN. This should be resolved by the end of first-half 2020.

The Daily Chart for United Technologies

Daily Chart For United Technologies

Daily Chart For United Technologies

Courtesy of Refinitiv XENITH

United Technologies had a positive key reversal on Dec. 26, 2018. That day had a cycle low of $100.48 and the stock closed at $106.01, above the Dec. 24, 2018, high of $105.74. 

The stock confirmed a golden-cross formation on April 15, 2019. This occurred when the 50-day simple moving average rose above the 200-day SMA, signaling that higher prices would follow. 

When a stock is above a golden cross, the strategy is to buy weakness to the 200-day simple moving average. The last time this was doable was Aug. 28, when the average was $126.39.

The 2019 close of $149.76 was an important input to my proprietary analytics. The annual risky level for all of 2020 is above the chart at $160.26. The first half semiannual pivot is at $153.50. The first-quarter value level is the horizontal line at $137.38. 

The monthly value level for January at $134.79 rolls out of the analytics at the end of this week. The week’s risky level is $154.29.

The Weekly Chart for United Technologies

The Weekly Chart For United Technologies

The Weekly Chart For United Technologies

Courtesy of Refinitiv XENITH

The weekly chart for United Technologies is positive but overbought, with the stock above its five-week modified moving average of $151.26. 

The stock is well above its 200-week simple moving average, or reversion to the mean, at $122.58. This was last crossed during the week of Jan. 25, 2019, when the average was $113.12. 

The 12x3x3 weekly slow stochastic reading is projected to slip to 88 this week from 89.6 on Jan. 24. 

During the week of Jan. 17 this reading was above 90, at 91.57, putting the stock in an inflating parabolic bubble formation.

Trading Strategist: Buy weakness to the quarterly value level at $137.38 and reduce holdings on strength to the semiannual pivot and weekly at $153.50 and $154.29, respectively. 

The Daily Chart for United Technologies 

The closes on Dec. 31, 2019, were inputs to my proprietary analytics and resulted in new monthly, quarterly, semiannual and annual levels. Each uses the past nine closes in these time horizons.

New weekly levels are calculated after the end of each week. New monthly levels occur after the close of each month. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at midyear. Annual levels are in play all year long.

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.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.