Consumer staples giant The Procter & Gamble Company (PG) beat earnings per share (EPS) estimates on July 30, extending its winning streak to 21 consecutive quarters. The stock traded higher and set its all-time intraday high of $135.97 on Aug. 12. That was just above this week's risky level at $135.21, where some profit taking was justified.

The stock closed Wednesday, Aug. 12, at $135.46, up 8.5% year to date and in bull market territory at 43.6% above its March 23 low of $94.34. The stock is overvalued with a P/E ratio of 26.02 and a dividend yield of 2.37%, according to Macrotrends.

P&G is a component of the Dow Jones Industrial Average. At the supermarket, you will find the company's beauty, grooming, health care, personal hygiene, and infant care products as you shop through the aisles. Given the risks related to the COVID-19 pandemic, consumers are hoarding some of these products.

The daily chart for Procter & Gamble 

Daily chart showing the share price performance of The Procter & Gamble Company (PG)
Refinitiv XENITH 

Procter & Gamble stock began 2020 with a bear market correction of 26.3% from a high of $128.07 on Feb. 21 to the March 23 low of $94.34. Then came the bull market run of 44% to the Aug. 12 high of $135.97, when the weekly risky level at $135.21 was tested.

The stock broke below its 50-day simple moving average (SMA) on Feb. 24, and then the 200-day SMA failed to hold on March 18, which led to the March 23 low. The death cross that occurred on March 27 was ignored due to the V-shaped bottom formation for the stock. By April 7, P&G stock returned to its 50-day and 200-day SMAs.

The 50-day and 200-day SMAs were magnets between April 14 and July 1, when the third quarter rally began. Before this breakout, the stock stabilized between its semiannual and annual pivots at $116.84 and $119.40, setting the stage for the rally. Buying at this buy zone is the reason to book some profits on strength to this week's risky level at $135.21.

The weekly chart for Procter & Gamble

Weekly chart showing the share price performance of The Procter & Gamble Company (PG)
Refinitiv XENITH

The weekly chart for Procter & Gamble is positive but overbought, with the stock above its five-week modified moving average at $127.32. The stock is well above its 200-week SMA, or reversion to the mean, at $98.21. The stock was a buy at this moving average when it was $94.77 during the week of March 27.

The 12 x 3 x 3 weekly slow stochastic reading is rising to 89.51 this week, up from 86.06 on Aug. 7. Next week, this reading will likely be above 90.00, which will put the stock in an "inflating parabolic bubble" formation.

Trading strategy: Buy Proctor & Gamble stock on weakness to its annual value level at $119.40 and reduce holdings at its weekly risky level at $135.21. 

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 level uses the last nine closes in these time horizons.

The third quarter 2020 level was established based upon the June 30 close, and the monthly level for August was established based upon the July 31 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 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 a gain 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.