Consumer staples giant The Procter & Gamble Company (PG) has a long history of beating earnings per share (EPS) estimates. Daily and weekly charts show downside risk after the stock set its all-time intraday high of $146.92 on Nov. 9, 2020.
Procter & Gamble stock is in correction territory at 13.5% below its all-time intraday high of $146.92 set on Nov. 9, 2020. The stock is also in a bull market at 34.7% above its low of $94.34 posted on March 23, 2020. Overall, the stock is down 8.6% year to date. The stock is overvalued with a P/E ratio of 23.13 and a dividend yield of 2.46%, according to Macrotrends.
P&G is a component of the Dow Jones Industrial Average. Go to any supermarket, and you will find the company's beauty, grooming, health care, personal hygiene, and infant care products as you walk through the aisles. Given the 2020 global crisis and lockdowns, some of these products are being hoarded by many consumers.
The Daily Chart for Procter & Gamble
The daily chart for Procter & Gamble shows that the stock has been above a golden cross since July 31, 2020. A golden cross occurs when the 50-day simple moving average rises above the 200-day simple moving average.
Note that Nov. 9 was a negative key reversal day. The stock set its all-time intraday high at $146.92 that day and then closed below the Nov. 6 low of $142.38. The stock has been below its 200-day simple moving average since Jan. 27. As the 50-day simple moving average falls toward the 200-day simple moving average, a death cross could be confirmed within a few weeks.
The horizontal lines at $134.01 and $137.21 are the semiannual and annual pivots, now considered risky levels. The lower of the three horizontal lines is this week's value level. A gap below this key level would be considered a breakdown.
- A moving average (MA) is a stock indicator that is commonly used in technical analysis.
- The reason for calculating the moving average of a stock is to help smooth out the price data over a specified period of time by creating a constantly updated average price.
- A simple moving average (SMA) is a calculation that takes the arithmetic mean of a given set of prices over the specific number of days in the past; for example, over the previous 15, 30, 100, or 200 days.
- An exponential moving average (EMA) is a weighted average that gives greater importance to the price of a stock on more recent days, making it an indicator that is more responsive to new information.
The Weekly Chart for Procter & Gamble
The weekly chart for Procter & Gamble is negative but oversold, with the stock below its five-week modified moving average at $131.42. The stock is well above its 200-week simple moving average, or reversion to the mean, at $104.99. The stock was a buy at this moving average when it was $94.77 during the week of March 27, 2020.
The 12x3x3 weekly slow stochastic reading declined to 10.46 last week, well below the oversold threshold of 20.00. If this reading declines below 10.00, the stock will be considered too cheap to ignore.
Trading strategy: Buy Proctor & Gamble stock on weakness to its 200-week simple moving average at $104.99. Reduce holdings on strength to the semiannual and annual pivots at $134.01 and $137.21. A gap below the weekly pivot at $126.17 is a technical warning.
Technical guidelines: The closes on Dec. 31, 2020, were inputs to my proprietary analytics. Quarterly, semiannual, and annual levels were calculated based upon the last nine closes in these time horizons. Monthly levels for February were established based upon the Jan. 31 closes. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels remain for the full year.
My choice of using 12x3x3 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 a gain 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.