Avis Budget Group, Inc. (CAR) reported earnings after the close on Monday, Aug. 5, and beat analysts' estimates. Despite this good news, the stock opened Tuesday, Aug. 6, below its 50-day simple moving average at $33.78, which indicates risk to its 200-day simple moving average at $31.34. The weekly chart provided a warning as the stock entered this week below its "reversion to the mean" at $34.46.
Avis shares closed Monday, Aug. 5, at $33.90, up 50.8% so far in 2019 and in bull market territory at 56.7% above the Jan. 3 low of $21.83. The stock set its 2019 high of $37.27 on May 1 and is 9% below this level. The stock was a high-flyer in 2014, setting its all-time intraday high of $69.76 during the week of Aug. 22, 2014. The stock is thus consolidating a longer-term bear market.
Avis Budget stock has a mixed fundamental profile, with a P/E ratio of 9.52 but without offering a dividend, according to Macrotrends. The company benefited from continued improvement in rentals for leisure use and touted that it had a strong residual fleet.
The daily chart for Avis Budget
The daily chart shows that Avis Budget has been above a "golden cross" since April 2, when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices lie ahead. This tracked the stock to its 2019 high of $37.27 set on May 1. The 200-day simple moving average was crossed between May 20 and June 13 as a buying opportunity at $30.89.
The stock closed at $22.48 on Dec. 31, which was an input to my proprietary analytics. This resulted in an annual risky level at $50.91. The close of $35.16 on June 28 was another important input to my analytics and resulted in a semiannual value level at $22.95 and a quarterly risky level at $44.08. The close of $36.39 on July 31 was an input that resulted in a monthly pivot for August at $35.52. The 50-day and 200-day simple moving averages are now at $33.79 and $31.34, respectively.
The weekly chart for Avis Budget
The weekly chart for Avis Budget is negative, with the stock below its five-week modified moving average of $34.43. The stock is also below its 200-week simple moving average, or "reversion to the mean," at $34.46, which just failed to hold this week. The 12 x 3 x 3 weekly slow stochastic reading is projected to slip to 76.26 this week, down from 76.86 on Aug. 2.
Trading strategy: Buy Avis Budget shares on weakness to the 200-day simple moving average at $31.34 and reduce holdings on strength to the monthly pivot at $35.52.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on July 31. The quarterly level was changed at the end of June.
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.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.