McCormick & Company, Incorporated (MKC) is a leading provider of spices, herbs and seasonings offered around the world. The stock has an overbought weekly chart and faces a double top with its all-time intraday high of $156.00 set on Dec. 13 and its 2019 high of $155.10 set on April 16.
In between these highs, the stock traded as low as $119.00 on Jan. 24, which is the day the company reported earnings and missed analysts' earnings per share estimates. The stock fell by a bear market 23% to the Jan. 24 low and then rallied by a bull market of 30% to the 2019 high.
McCormick beat earnings estimates for the first quarter on March 26, providing the catalyst to reach for a new high, but the stock could top out before that happens. One reason is that the stock is not cheap. Its P/E ratio is elevated at 29.95 with a puny dividend yield of 1.50%, according to Macrotrends. The earnings showed faster-than-expected growth with expanding profitability. The company is spicing up its portfolio of tastes using artificial intelligence. With new products come wider margins, but this innovation may be priced in.
The daily chart for McCormick
McCormick has been above a "golden cross" since Dec. 6, 2017, when the stock closed at $103.00. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving and indicates that higher prices lie ahead. This signal remains in play even with the 23% plunge from the Dec. 13 high to the Jan. 24 low. Note how the stock rose along its 200-day simple moving average between Jan. 24 and Feb. 8 as a buying opportunity.
The 2018 close of $139.24 was input to my proprietary analytics, and the semiannual and annual levels remain in play at $139.14 and $134.90, respectively. These levels provided magnets as 2019 began and again after the Jan. 24 price gap. When you have two strong magnets, it's almost certain that the price gap will be filled. The close of $148.70 on March 29 was also an input to my analytics and resulted in a quarterly value level at $146.18 and monthly risky level at $160.90.
The weekly chart for McCormick
The weekly chart for McCormick is positive but overbought, with the stock above its five-week modified moving average of $146.36. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $104.27. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 89.12 this week, up from 84.99 on April 12. A move above 90.00 would put the stock in an "inflating parabolic bubble."
Trading strategy: Buy McCormick shares on weakness to the quarterly value level at $146.18 and reduce holdings on strength to its monthly risky level at $160.90.
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 was changed at the end of January, February and March. 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.
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.