Navistar International Corporation (NAV) is a manufacturer of commercial trucks and buses as well chassis for motor homes and step vans. The stock rallied Tuesday as the company raised forward guidance, although this guidance was hedged by the comment that it was unclear how the trade war would affect performance. Tariffs on Mexico are a concern, as two-thirds of Navistar's truck capacity travels across our southern border.
Navistar stock closed Tuesday, June 4, at $33.96, up 30.9% year to date and in bull market territory at 43.4% above its Dec. 17 low of $23.69. The stock is also in correction territory at 14.1% below its 2019 high of $39.52 set on March 4.
The daily chart for Navistar
The daily chart for Navistar began June holding above its monthly value level for June at $30.73. The stock set its 52-week intraday high of $44.25 on July 24 and declined by a bear market 46% to its Dec. 17 low of $23.69. The close of $31.11 on May 31 was an input to my proprietary analytics and resulted in a monthly value level for June at $30.73. Its semiannual value level is below the chart at $19.02, and its quarterly risky level is above the chart of $46.03.
The weekly chart for Navistar
The weekly chart for Navistar is positive, with the stock above its five-week modified moving average of $32.54. The stock is above its 200-week simple moving average, or "reversion to the mean," at $27.61. Investors could have bought the stock at this average when it was $26.76 during the week of Dec. 14.
The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week rising to 36.55, up from 29.40 on May 31. At the low set during the week of Dec. 21, this reading was below 10.00 at 9.49, making the stock technically "too cheap to ignore." Its P/E ratio is below 10.00 at 6.32, according to Macrotrends.
Trading strategy: Buy Navistar shares on weakness to the monthly value level at $30.73 and reduce holdings on strength to the March 4 high at $39.52.
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 each month. The May 31 close set the key level for June. 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.