Engineering and construction company Fluor Corporation (FLR) reported second quarter earnings after the close on Thursday, Aug. 1, and the company missed estimates for the second quarter in a row. The stock traded as low as $22.10, a level not seen since November 2004. Keep in mind that this stock set its all-time intraday high of $101.36 in June 2008. Investors will have a tough time catching this falling knife.
The stock ended last week at $22.67, down 29.6% year to date and deep into bear market territory at 62.6% below its 52-week high of $60.60 set on Oct. 2. The engineering and construction company got crushed due to a huge one-time pre-tax charge. The firm must go through a total rethinking of project management and its financing needs. Fluor is a company that should benefit from infrastructure spending if Congress can come up with a plan and strategy. It may be helpful to study the Fluor website to review featured products.
The stock has a P/E ratio of 20.47 and a dividend yield of 2.72%, according to Macrotrends, which is a neutral profile. My problem is that my proprietary analysis does not generate a value level at which to buy this stock on weakness.
The daily chart for Fluor
The daily chart for Fluor shows that the stock has been below a "death cross" since Nov. 1, when the 50-day simple moving average declined below the 200-day simple moving average to indicate that lower prices lie ahead. The close of $32.20 on Dec. 31 was an important input to my proprietary analytics, and its annual pivot remains at $37.23, which is now a risky level. Note how $37.23 was a magnet between Jan. 17 and April 1. The stock gapped below this annual level on May 2 on a negative reaction to earnings.
The close of $33.69 on June 28 was another important input to my analytics. This resulted in semiannual and quarterly risky levels at $34.73 and $41.83, respectively. The close of $32.51 on July 31 was the most recent input to my analytics, and the stock gapped below a monthly pivot at $27.81 on Friday on the negative reaction to earnings released after the close on Aug. 1.
The weekly chart for Fluor
The weekly chart for Fluor is neutral, with the stock below its five-week modified moving average of $30.32. The stock is also below its 200-week simple moving average, or "reversion to the mean," at $47.27. The 12 x 3 x 3 weekly slow stochastic reading rose to 37.17 last week, up from 36.70 on July 26. This stock had been a high-flyer. Its all-time intraday high of $101.36 was set in June 2008.
Trading strategy: Reduce holdings in Fluor Corporation on strength to its semiannual, annual, and quarterly risky levels at $34.73, $37.23, and $41.82, respectively. The monthly pivot for August is $27.81.
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.