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Book Profits on Campbell Soup as Shares Rise within This Sell Zone

Sell Campbell Soup on strength to its monthly, semiannual and annual risky levels at $48.04, $48.60 and $50.25, respectively. The stock is also testing its reversion to the mean, or its 200-week simple moving average at $48.64.

Campbell Soup CPB beat earnings-per-share estimates before the opening bell on Dec. 4 but missed on revenue. The stock opened at $47.49, then rose into a sell zone of several technical levels. 

My call is to book profits on strength to monthly, semiannual and annual risky levels at $48.04, $48.60 and $50.25, respectively. 

The weekly chart supports this strategy with a declining 12x3x3 weekly slow stochastic reading. The stock is also testing its reversion to the mean, or its 200-week simple moving average at $48.64.

Its hard to find a reason why shares of Campbell Soup would rise above its annual risky level at $50.25. After all, the company missed on revenue and cut forward guidance. 

The stock closed Tuesday at $47.58, up 44% year to date and in bull-market territory 49% above its Jan. 2 low of $32.04. The soup maker set its 2019 high of $48.89 in reaction to this morning’s premarket earnings report.

The stock set its all-time intraday high of $67.89 during the week of July 8, 2016, then declined 52% to its Jan. 2, 2019, low of $32.04.

Campbell is reasonably priced with a price-to-earnings multiple of 18.3 and a dividend yield of 3%, according to Macrotrends.

The Daily Chart for Campbell

Courtesy Refinitiv XENITH

Courtesy Refinitiv XENITH

The daily chart for Campbell shows that the stock has been above a golden cross since May 13. That's when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices would follow. The fourth-quarter value level is at the bottom of the chart at $36.21. The two horizontal lines at the top the chart are the monthly and semiannual pivots at $48.04 and $48.60, respectively, and both were crossed as magnets in today’s trading.

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The Weekly Chart for Campbell

Courtesy of Refinitiv XENITH

Courtesy of Refinitiv XENITH

The weekly chart for Campbell is neutral, with the stock above its five-week modified moving average of $46.90. The stock tested its 200-week simple moving average. or reversion to the mean, at $48.64 in today’s trading. 

The horizontal line is the annual risky level at $50.25. The 12x3x3 weekly slow stochastic reading is projected to decline to 71.91 this week down from 73.53 on Nov. 29.

Trading Strategy: Book profits with the stock between its monthly, semiannual and annual risky levels at $48.04, $48.60 and $50.25, respectively. The reversion to the mean is within the range at $48.64.

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 Sept. 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.