Lamar Advertising Company (LAMR) reported earnings before the opening bell on Wednesday, Aug. 7, and the stock traded lower after the results fell short of analysts' estimates. Then the stock reversed direction on Thursday, Aug. 8, opening above and holding its 200-day simple moving average at $77.28. The catalyst was positive guidance. Lamar focuses on outdoor advertising including billboards, logo signs, and other displays seen in North America.
The stock closed Wednesday at $77.83, up 12.6% year to date and in bull market territory up 20.8% since trading as low as $64.51 on Dec. 20. The stock set its all-time intraday high of $84.50 on June 20 and is 7.8% below this level. Lamar Advertising stock is classified as a real estate investment trust (REIT) and is relatively cheap with a P/E ratio of 14.17 with a generous dividend yield of 4.93%, according to Macrotrends.
The daily chart for Lamar Advertising
The daily chart for Lamar has been above a "golden cross" since March 5, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. This tracked the stock to its all-time intraday high of $84.50 set on June 20. The stock held its 200-day simple moving average at $77.28, which targets its 50-day simple moving average at $80.31. The stock is above its annual and quarterly value levels at $73.93 and $73.63, respectively, and below its monthly and semiannual risky levels at $80.58 and $84.80, respectively.
The weekly chart for Lamar Advertising
The weekly chart for Lamar is negative, with the stock below its five-week modified moving average of $80.09. The stock is above its 200-week simple moving average, or "reversion to the mean," at $69.45. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 43.78, down from 46.95 on Aug. 2. Back on April 26, this reading was above the 90.00 threshold at 91.36 as an "inflating parabolic bubble," and bubbles always pop.
Trading strategy: Buy Lamar Advertising shares on weakness to the annual and quarterly value levels at $73.93 and $73.63, respectively, and reduce holdings on strength to the monthly and semiannual risky levels at $80.58 and $84.80, respectively.
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.
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.