Pfizer Inc. (PFE) beat earnings per share (EPS) estimates for the 11th consecutive quarter on Oct. 29, and the stock traded higher thanks to a positive weekly chart. The stock has been above its "reversion to the mean," or its 200-week simple moving average, which is at $36.51.
Pfizer is a pharmaceutical giant and a component of the Dow Jones Industrial Average. The stock closed Tuesday, Nov. 5, at $37.48, down 14.1% year to date and in correction territory at 19.3% below its Dec. 4, 2018 high of $46.47. The stock has been in recovery mode since trading as low as $33.87 on Aug. 15 and is up 10.3% since then.
The daily chart for Pfizer
The daily chart for Pfizer shows the performance for the stock over the past 52 weeks. Going back to Dec. 4, 2018, the stock had a negative "key reversal" day. The stock set its 52-week high of $46.47 that day and then closed at $45.14, below the Dec. 3 low of $45.76.
The close of $43.65 on Dec. 31 was an input to my proprietary analytics, and the annual risky level remains above the chart at $48.44. The close of $43.32 on June 28 was another important input to my proprietary analytics. The semiannual value level at $41.21 failed to hold on a price gap lower on a negative reaction to earnings reported on July 29. The close of $35.93 on Sep. 30 was another input to my analytics, and the stock has been below its fourth quarter risky level at $42.82. The Oct. 31 close at $38.37 was another input to my analytics, and its monthly value level is $35.53.
The weekly chart for Pfizer
The weekly chart for Pfizer is positive, with the stock above its five-week modified moving average of $37.12. The stock is above its 200-week simple moving average, or "reversion to the mean," at $36.51. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 52.58 this week, up from 40.35 on Nov. 1. Back at its fourth quarter 2018 high of $46.47, this reading was at 95.51, well above the 90.00 threshold as an "inflating parabolic bubble," which clearly popped as this signal predicted.
Trading strategy: Buy Pfizer stock on weakness to its monthly value level at $35.53 and reduce holdings on strength to its semiannual, quarterly, and annual risky levels at $41.21, $42.82, and $48.44, respectively.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018, and the original annual level remains in play. The close at the end of June 2019 established new semiannual levels, and the semiannual level for the second half of 2019 remains in play. The quarterly level changes after the end of each quarter, so the close on Sep. 30 established the level for the fourth quarter. The close on Oct. 31 established the monthly level for November.
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.