Consumer staples giant The Procter & Gamble Company (PG) has a winning streak of beating earnings per share (EPS) estimates in 21 consecutive quarters. The stock is in correction territory at 14% below its all-time intraday high of $128.09 set on Feb. 6, but it is also 16.8% above its March 23 low of $94.34.
P&G stock closed last week at $110.17, down 11.8% year to date and below its quarterly, semiannual, and annual risky levels at $112.65, $115.53, and $119.40, respectively. The stock is slightly overvalued with a P/E ratio of 21.69 and a dividend yield of 2.78%, according to Macrotrends.
P&G is a component of the Dow Jones Industrial Average. At the supermarket, you will find the company’s beauty, grooming, health care, personal hygiene, and infant care products as you shop the aisles. Given the spread of COVID-19, consumers are hoarding some of these products.
The daily chart for Procter & Gamble
Procter & Gamble stock has been trading above a “golden cross” since Sept. 12, 2018, when the 50-day simple moving average rose above the 200-day simple moving average. This is a buy signal that tracked the stock to its all-time intraday high of $128.09.
As shown on the upper right on the chart, a “death cross” will likely be confirmed this week. This should occur as the 50-day simple moving average at $119.60 falls below the 200-day simple moving average at $119.69. The upside should be limited to this crisscross, as its annual pivot is $119.40. This pivot was a magnet between Feb. 27 and March 18.
The semiannual pivot at $115.53 was a magnet between Feb. 27 and March 19 as the stock bounced up and down several times. The first quarter pivot at $112.65 was a magnet between Feb. 28 and March 27, but the close that day was below this level. Note the impressive move higher from the March 23 low of $94.34.
The weekly chart for Procter & Gamble
The weekly chart for Procter & Gamble is negative, with the stock below its five-week modified moving average at $115.83. The stock is above its 200-week simple moving average, or “reversion to the mean,” at $94.77. The stock was a buy at this level at last week’s low on March 23.
The 12 x 3 x 3 weekly slow stochastic reading ended last week declining to 49.92, down from 55.14 on March 20. As the share price moved higher starting in October 2019, this reading was above 90.00, putting the stock in “inflating parabolic bubble” formation, and this signaled the eventual decline to the 200-week simple moving average.
Trading strategy: Buy Procter & Gamble shares on weakness to the 200-week simple moving average at $94.77 and reduce holdings on strength to the semiannual and annual risky levels at $115.53 and $119.40.
How to use my value levels and risky levels: Stock closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual, and annual levels remain on the charts. Each calculation uses the last nine closes on these time horizons.
Monthly levels for March were established based upon the Feb. 28 closes. New weekly levels are calculated after the end of each week. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. 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 shares 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 their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting 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, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered “too cheap to ignore,” which is typically 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.