General Mills, Inc. (GIS) makes branded consumer foods that are sold through retail stores around the world.
- The stock closed Thursday, Oct. 8, at $61.39 and appears to have upside potential to its annual and quarterly risky levels at $63.69 and $65.90.
- The stock is 7.2% below its Aug. 4 high at $66.14 and 31.8% above its Feb. 28 low of $46.59. It is up 14.6% year to date.
- General Mills has beaten earnings per share (EPS) estimates in nine consecutive quarters.
- The stock is reasonably priced with a P/E ratio of 16.411 and dividend yield of 3.13%, according to Macrotrends.
The daily chart for General Mills
The daily chart for General Mills shows the formation of a golden cross on April 14. A golden cross is confirmed when the 50-day simple moving average moves above the 200-day simple moving average. This indicates that higher prices lie ahead.
This buy signal tracked the stock to its 2020 high of $66.14 on Aug. 4. The stock traded as low as $46.59 on Feb. 28 and then moved above its 50-day and 200-day simple moving average on April 2. The stock tested its annual pivot at $63.69 on May 13. This level was a magnet until Sep. 4.
General Mills stock is now trading below this level, with its 200-day simple moving average at $58.60. Recent strength since has been shy of its annual and quarterly pivots at $63.69 and $65.90. This week's value level at $58.85 lines up with the 200-day simple moving average at $58.60.
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. It is a technical indicator that can aid in determining if an asset's price trend will continue or reverse. A simple moving average differs from an exponential moving average (EMA), which is more heavily weighted on recent price action.
The weekly chart for General Mills
The weekly chart for General Mills is positive, with the stock above its five-week modified moving average of $61.40. The stock is also above its 200-week simple moving average, or reversion to the mean, at $53.00. The 12 x 3 x 3 weekly slow stochastic reading ended last week rising to 38.87, up from 34.10 on Oct. 2.
Trading strategy: Buy General Mills stock on weakness to the 200-day simple moving average at $58.60 and reduce holdings on strength to its annual and quarterly pivots at $63.69 and $65.90.
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, and the annual level remains on the charts. The semiannual level was based upon the input of the June 30 close. The fourth quarter 2020 level was established based upon the Sept. 30 close, and the monthly level for October was also based upon the Sept. 30 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 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.