The J. M. Smucker Company (SJM) beat earnings per share (EPS) estimates for the third consecutive quarter when it reported results before the open on June 4. The reaction was negative, as its forward guidance was disappointing. Smucker stock gapped below its 50-day simple moving average (SMA) and traded as low as $104.15 on June 12. The stock is now between its monthly and semiannual pivots at $106.72 and $109.43, respectively.
The stock closed Wednesday, June 17, at $108.07, up 3.8% year to date and in correction territory at 14% below its April 21 high of $125.62. The stock is also 17.6% above its March 16 low of $91.88. Smucker is cheap, with a P/E ratio of 12.45 and a dividend yield of 3.26%, according to Macrotrends. This makes the stock an appropriate company for value investors.
The daily chart for Smucker
The daily chart for Smucker shows that the stock had been moving sideways to down tracking its 200-day simple moving average. Then came a jolt of extreme volatility. The stock fell to its March 16 low of $91.88 and then popped to as high as $121.39 on March 17. Then the stock plunged to $93.41 on March 23.
This was followed by extreme upside volatility to as high as $125.62 on April 21. This type of volatility keeps investors on the sidelines. From the high, the stock traded around its monthly pivot at $106.72 between June 8 and June 16 before trading around its semiannual pivot at $109.43 over the past two days.
The weekly chart for Smucker
The weekly chart for Smucker is negative, with the stock below its five-week modified moving average of $110.06. The stock is also below its 200-week simple moving average, or reversion to the mean, at $115.94. Smucker stock has been below this key average since the week of May 22.
The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 50.21 this week, down from 57.58 on June 12. During the week of May 17, 2019, this reading was 96.64, putting the stock in an "inflating parabolic bubble" formation, which led to the low of $91.88 on March 16.
Trading strategy: Buy Smucker stock on weakness to its monthly pivot at $106.72 and reduce holdings on strength to the 200-week simple moving average at $115.94. The monthly and semiannual pivots at $106.72 and $109.43 will likely be magnets until the end of June.
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.