Oracle Corporation (ORCL) beat earnings per share (EPS) estimates on June 16. The stock popped to $55.00, dropped to $51.32 on June 18, and then traded as high as $55.96 on June 23. Today the stock is below its quarterly pivot at $55.61. The cloud computing company provides software and information technology products for on-site applications on customized hardware.
Oracle stock closed Tuesday, June 23, at $55.12, up 4% year to date and in bull market territory at 38.8% above its March 12 low of $39.71. The stock is also 8.9% below its July 10, 2019, high of $60.50 The stock is reasonably priced with a P/E ratio of 15.54 and a dividend yield of 1.76%.
The daily chart for Oracle
The daily chart for Oracle shows that stock has been moving sideways to down since trading as high as $60.50 since July 10, 2019. The 200-day simple moving average has been a magnet since Aug. 16, 2019.
Oracle stock gapped below its 50-day and 200-day simple moving averages on Feb. 24, which led to the March 12 low of $39.71. The V-shaped bottom had the stock back above its 50-day simple moving average on April 6. The 200-day simple moving average became a magnet again on April 14.
The stock is above its value level for June at $50.38 and tested its quarterly pivot at $55.61 on June 23. The stock is between its 200-day simple moving average at $53.25 and its quarterly risky level at $55.61.
The weekly chart for Oracle
The weekly chart for Oracle is positive but overbought, with the stock above its five-week modified moving average of $53.33. The stock is above its 200-week simple moving average, or reversion to the mean, at $48.98. Oracle has been above this key average since the week of April 3.
The 12 x 3 x 3 weekly slow stochastic reading is projected to slip to 83.89 this week, down from 86.20 on June 19. At the July 2019 high, this reading was above 90.00, putting the stock in an inflating parabolic bubble formation, and bubbles always pop.
Trading strategy: Buy Oracle stock on weakness to its monthly value level at $50.38 and reduce holdings on strength to the semiannual risky level at $58.79. The quarterly pivot at $55.61 remains a magnet.
How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.
The second quarter 2020 level was established based upon the March 31 close, and the monthly level for June was established based upon the May 29 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.
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 the 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 gains 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.