General Mills, Inc. (GIS) makes branded consumer foods sold through retail stores around the world. The stock closed Friday, June 21, at $53.77, up 38.1% so far in 2019 and in bull market territory at 47.6% above its Dec. 17 low of $36.42. The stock set it 2019 high of $54.39 on June 21, and its all-time intraday high of $72.92 was set during the week of July 8, 2016. This means that – from this high to the Dec. 17, 2018 low – the stock plunged by a bear market decline of 50%.
Analysts expect General Mills to report earnings per share (EPS) of 76 cents to 79 cents when the company releases results before the opening bell on Wednesday, June 26. The stock is reasonably priced with a P/E ratio of 16.91 and dividend yield of 3.65%, according to Macrotrends.
The maker of Cheerios is expected to have a year-over-year decline in EPS but higher revenue growth. On May 29, Goldman Sachs downgraded General Mills stock to sell from neutral, which provided a buying opportunity. Weakness to $47.78 on this day was followed by a rally to the June 21 high of $54.39.
The daily chart for General Mills
The daily chart for General Mills shows the formation of a "golden cross" on March 12. A "golden cross" occurs when the 50-day simple moving average rebounds above its 200-day simple moving to indicate that higher prices lie ahead. This positive signal tracked the stock to its 2019 high of $54.39 on June 21.
The stock traded as low as $36.42 on Dec.17 and then popped higher on Dec. 19 on a positive reaction to earnings. The close of $38.94 on Dec. 31 was an important input to my proprietary analytics, and the annual risky level remains at $62.34.
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 $51.95. The stock is below its 200-week simple moving average, or "reversion to the mean," at $54.78, and thus a positive reaction to earnings would cause a pop above this level. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 79.59, up from 76.31 on June 14. This reading was above 90.00 on May 24 as an "inflating parabolic bubble," which was a false negative.
Trading strategy: Buy General Mills shares on weakness to the 200-day simple moving average at $46.18 and reduce holdings on strength to the annual risky level at $62.34.
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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level changed at the end of each month. The quarterly level was changed at the end of March.
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.
The close on June 28 will be the second most important for 2019. This close is an input to my proprietary analytics and will generate new weekly, monthly, quarterly, and semiannual levels.
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. 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 reading below 10.00 as "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.