Shares of Campbell Soup Company (CPB) declined by 29.2% from a high of $57.54 on March 17 to a low of $40.70 on March 26. This range has been consolidated since then. The stock has been above a golden cross since May 13, 2019, and this could end soon given the weakness since Aug. 27.

Key Takeaways

  • Campbell Soup has experienced increased demand as consumers eat at home more during the COVID-19 pandemic.
  • The stock has been above a golden cross since May 13, 2019, and this could end soon given weakness in the shares since Aug. 27.
  • Traders should consider buying shares on weakness to the March 26 low of $40.70 and reducing holdings on strength to the monthly risky level at $49.48.

The stock closed Monday, Sept. 21, at $46.07, down 6.8% year to date. It is deep into correction territory at 19.9% below the March 17 high at $57.54. The stock is also up 13.2% since trading as low as $40.70 on March 26.

Campbell Soup provides canned soups and other related products in 120 countries around the world. The company has experienced increased demand as consumers eat more at home during the COVID-19 pandemic. The stock is reasonably priced with a P/E ratio of 15.35 and a dividend yield of 3.08%, according to Macrotrends.

The daily chart for Campbell Soup

Daily chart showing the share price performance of Campbell Soup Company (CPB)
Refinitiv XENITH

The daily chart for Campbell shows the major consolidation from the March 17 high to the March 26 low. Note how the 50-day simple moving average (SMA) at $49.56 is converging on the 200-day simple moving average at $49.05.

When the 50-day SMA moves below the 200-day SMA, a death cross will be confirmed. This signal is occurring given the decline from $54.08 on Aug. 27 to the low of $44.53 set on Sept. 8. The stock failed to hold its monthly value level at $49.48 on Sept. 3 and has been trading around quarterly pivot at $46.03 since Sep. 8.

A simple moving average (SMA) calculates the average of a selected range of prices, usually closing prices, by the number of periods in that range. The SMA is a technical indicator that can aid in determining if an asset price will continue or if it will reverse a bull or bear trend.

The weekly chart for Campbell Soup

Weekly chart showing the share price performance of Campbell Soup Company (CPB)
Refinitiv XENITH

The weekly chart for Campbell Soup is negative, with the stock below its five-week modified moving average of $47.89. The stock is just below its 200-week SMA, or reversion to the mean, at $46.25. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 29.46 this week, down from 39.13 on Sept. 18.

Trading strategy: Buy Campbell Soup stock on weakness to the March 26 low of $40.70. Reduce holdings on strength to its monthly risky level at $49.48. The quarterly pivot remains at $46.03.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.

The third quarter 2020 level was established based upon the June 30 close, and the monthly level for September was established based upon the Aug. 31 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and 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 the 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.