Cracker Barrel Old Country Store, Inc. (CBRL) missed earnings per share (EPS) estimates on June 2, but the stock rallied towards its 200-day simple moving average at $137.41 on June 5. Cracker Barrel is a combination country restaurant and gift shop with a southern comfort feeling. Stores are located at many major exits along the Eisenhower Interstate Highway System in the Southeast and the Midwest.
The stock closed Monday, June 15, at $116.17, down 24.4% year to date and in bear market territory at 31.7% below its Feb. 25 high at $170.19. Cracker Barrel stock is also in a bull market with a gain of 116.7% from its March 19 low of $53.61. The stock has a P/E ratio of 19.93 without paying a dividend, according to Macrotrends.
When the economy was on lockdown due to COVID-19, foot traffic into Cracker Barrel stores was weak. This changed on a dime as travelers returned to the highways recently. Along the I-95 corridor, the parking lots are full again.
The daily chart for Cracker Barrel
The daily chart for Cracker Barrel shows the stock moving sideways along the 200-day simple moving average until Feb. 26, when the bear market decline began. This is when the stock first closed below its 50-day simple moving average.
The stock then plunged to its March 19 low of $53.61. This day proved to be a key reversal, as the close was above the March 18 high at $63.80. On the rebound, the stock returned to its 50-day simple moving average on April 29.
After declining once again, the stock popped toward its quarterly pivot at $127.48, which failed to hold on June 10. Cracker Barrel stock failed just below its 200-day simple moving average at $137.41 on June 5. The stock traded as low as $107.46 on June 15, and today's trade is between its quarterly pivot at $127.48 and its weekly pivot at $115.59.
The weekly chart for Cracker Barrel
The weekly chart for Cracker Barrel is positive, with the stock above its five-week modified moving average of $108.73. The stock is below its 200-week simple moving average, or reversion to the mean, at $149.98. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 65.11 this week, up from 58.97 on June 12.
Trading strategy: Buy Cracker Barrel stock on weakness to its monthly value level at $93.82, and reduce holdings on strength to its quarterly risky level at $127.48.
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 second quarter 2020 level was established based upon the March 31 close, and the monthly level for June was established based upon the May 29 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.