General Mills, Inc. (GIS) makes branded consumer foods sold through retail stores around the world. The stock closed Friday, March 15, at $47.51, up 22% so far in 2019 and in bull market territory at 30.5% above its Dec. 17 low of $36.42. The stock is approaching its 2018 high of $48.11 set on Sept. 17.
General Mills stock set its all-time intraday high of $72.92 during the week of July 8, 2016. This means that, from this high to the low posted on Dec. 17, 2018, the stock plunged by a bear market decline of 50%.
Analysts expect General Mills to report earnings per share of 69 cents when the company discloses results before the opening bell on Wednesday, March 20. The maker of Wheaties has been on the rise thanks to an upgrade by Deutsche Bank, which touts the company's pet food brands. Ready-to-eat meals are another food group gaining popularity. The stock is reasonably priced with a P/E ratio of 15.13 and a dividend yield of 4.13%, according to Macrotrends.
The daily chart for General Mills
General Mills reports earnings after a "golden cross" formed on March 12. A "golden cross" occurs when the 50-day simple moving average rebounds above the 200-day simple moving to indicate that higher prices lie ahead. This positive signal tracked the stock to its 2019 high of $47.81 today. General Mills shares set their 2018 high of 48.11 on Sept. 17 on a positive reaction to earnings. The stock traded as low as $36.42 on Dec.17 and then popped higher on Dec. 19 on another positive reaction to earnings.
The close of $38.94 on Dec. 31 was an input to my proprietary analytics and resulted in my quarterly value level at $35.03, my semiannual risky level at $54.07 and my annual risky level at $62.34. The close of $47.13 on Feb. 28 was another input to my analytics and resulted in my monthly value level at $44.25. My weekly risky level is $48.06.
The weekly chart for General Mills
The weekly chart for General Mills is positive but overbought, with the stock above its five-week modified moving average of $45.82. The stock is below its 200-week simple moving average, or "reversion to the mean," at $55.10. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 92.23, well above the overbought threshold of 80.00, and with a reading above 90.00, the stock has become an "inflating parabolic bubble."
Trading strategy: Buy General Mills shares on weakness to my monthly value level at $44.25 and reduce holdings on strength to my semiannual risky level at $54.07.
How to use my value levels and risky level: My value levels and risky levels are based upon the past nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original quarterly, semiannual and annual levels remain in play. The weekly level is changed each week; the monthly level was changed at the end of January and February.
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 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 past 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. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a stock with reading below 10.00 as being "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.