CBS' Past Share Price Volatility Should Guide Investors to Trade the Range

NEW YORK (TheStreet) -- Shares of CBS (CBS) set a huge trading range in 2014. The stock price plummeted 28% from an all-time intraday high of $68.10 on March 11 to as low as $48.83 on Oct. 13.

After that the stock was on a momentum run-up of 30%, reaching a high of $63.71 for 2015 on March 20. After this wild ride, however, the daily and weekly charts could shift to negative if the company misses its earnings estimate.

Because CBS shares demonstrated such great volatility in price last year, investors should be prepared in advance of the company's quarterly earnings report. If investors positively react to CBS' earnings results, the stock could rally to the high end of its trading range set in 2014, whereas a negative reaction could take the stock price to a new low for 2015.

Analysts expect CBS to earn 75 cents a share when it announces its first-quarter results for fiscal 2015 on Thursday after the closing bell. The company has matched or beat earnings estimates for eight consecutive quarters. If the stock pops on better-than-expected earnings, the daily and weekly charts will turn positive. If not, these charts will go negative.

By examining the daily and weekly charts for CBS, investors can figure out the key technical levels to know about when to buy shares on weakness and when to sell the on strength.

Investors not familiar with technical analysis should begin with the notion that a price chart for a stock shows a road map of past price performance, which provides guidance for predicting the future direction of its share price.

Here's how to read a daily chart: There are two moving averages to follow: In the chart below, the 50-day simple moving average is marked in blue while the 200-day simple moving average appears in green.

Here's how to read a weekly chart: This chart shows weekly price bars since the start of 2007, taking in the period of the 2008 crash and subsequently the current bull market for stocks that began in March 2009. The red line tracks the ups and downs of the key weekly moving average. The green line is the 200-week simple moving average. The red line that oscillates along the bottom of the chart is the momentum reading on a scale of 00.00 to 100.00. A reading below 20.00 is oversold and a reading above 80.00 is overbought.

A technically positive weekly chart occurs when a stock ends a week above its key weekly moving average, with the momentum reading rising above 20.00.

A technically negative weekly chart results when a stock ends a week below its key weekly moving average, with the momentum reading declining below 80.00.

Here's the daily chart for CBS, below:

Courtesy of MetaStock Xenith

CBS shares were priced $61.12 on Wednesday at the market's close, thereby holding onto a 10% year-to-date gain, but the stock is about 4.1% below its all-time intraday high of $63.71 set on March 20. (On Thursday at 3:10 p.m. ET, the shares were priced about the same, about $61.41.)

The stock price has been above its 200-day simple moving average since Feb. 12 when this average was $56.71. The company matched its earnings estimate on Feb. 12 and the stock price moved dramatically higher, creating a price gap on Feb. 13. 

The stock is now just below its 50-day simple moving average of $61.47, which explains the importance of a possible positive reaction to earnings. Should there be a negative earnings report, the stock price could go as low as its 200-day simple moving average of $57.07. Such a move by the stock price would more than fill the price gap created since the Feb. 12 high of $57.80.

Here's the weekly chart for CBS:

Courtesy of MetaStock Xenith

The weekly chart for CBS will shift to negative if the share price on Friday after the market's close is below its key weekly moving average of $61.25. That's because its projected momentum reading of 77.43 is declining below the overbought threshold of 80.00. The 200-week simple moving average of $45.86 is the longer-term uptrend and the "reversion to the mean" last tested at $17.68 during the week of Dec. 10, 2010.

Investors looking to buy CBS shares should place a good 'til canceled limit order to purchase the stock if its price drops to $55.54, which is a key level on technical charts until the end of May.

Those intending to book profits should place a good 'til canceled limit order to sell their shares if the price rises into the $69.27 to $70.30 range, which are key levels on technical charts until the end of June.

Must Read: CBS Is Set to Launch Standalone Showtime to Compete with HBO, Netflix

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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