McCormick & Company, Incorporated (MKC) is a leading provider of spices, herbs, seasonings, and condiments offered around the world. The stock closed Tuesday, June 25, at $153.09, up 9.9% year to date and in bull market territory at 28.8% above its Jan. 24 low of $119.00. The stock is fading from its all-time intraday high of $159.57 set on June 7.
Analysts expect the company to post earnings per share of $1.09 when it reports results before the opening bell on Thursday, June 27. The stock is not cheap, as its P/E ratio is elevated at 30.28 with a dividend yield of 1.48%, according to Macrotrends.
McCormick is becoming eco-friendly by shifting to new packaging materials. Its goal is to offer products in packages that can recycled by 2025. This goal has become a reality for black pepper and Old Bay seasoning. The company also added new products through acquisitions, and some of these products have gained popularity. McCormick is also developing products for health and wellness innovations.
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 (SMA) rises above the 200-day SMA and indicates that higher prices lie ahead. This signal remains in play, and weakness to its 200-day SMA provided a buying opportunity at $125.57 on Jan. 24, when the stock set its 2019 low of $119.00.
McCormick stock hit this low as it gapped lower on a negative reaction to earnings reported on Jan. 24. The 2019 high of $159.57 was set on June 7. The 2018 close of $139.24 was input to my proprietary analytics, and its annual value level remains at $134.90. This week, the stock has fallen below its 50-day SMA at $154.45, which indicates risk to the 200-day SMA at $143.14.
The weekly chart for McCormick
The weekly chart for McCormick is negative, with the stock below its five-week modified moving average of $153.53. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $107.94. The 12 x 3 x 3 weekly slow stochastic reading is projected to fall to 74.54 this week, down from 86.76 on June 21. During the week of the high (June 7), this reading was 93.32 as an "inflating parabolic bubble." This bubble is now popping.
Trading strategy: Buy McCormick shares on weakness to the 200-day SMA at $143.14 then add to holdings on weakness to the annual value level at $134.90.
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 changes 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.
In terms of my analysis, 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.