Shares of Toro Co. (TTC) reported better-then-expected before the opening bell on Thurs., Aug. 22 and the stock responded by setting an all-time intraday high of $75.25. This put the stock between its monthly pivot at $72.15 and its semiannual risky level at $81.90. This strength was short-lived as the open on Fri., Aug. 23 was a gap below the pivot at $72.15. This pop then drop indicates risk to the annual value level at $66.78.

Toro ended last week at $71.07 up 27.2% year to date and in bull market territory 34.2% above its Dec. 26 low of $52.97. The stock ended last week 5.6% below the Aug. 22 high of $75.25.

The stock is not cheap with a P/E ratio of 25.59 with a dividend yield of just 1.24%, according to Macrotrends. The company attributed its jump in earnings to its acquisition of Charles Machine Works which makes underground construction equipment. It seems to me that Friday’s price reversal may have been caused buy the intensification of the trade war with China.

The daily chart for Toro

Daily Chart For Toro

Courtesy of Refinitiv XENITH

Toro has been above a ‘golden cross’ since March 1 when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. This tracked the stock to its all-time intraday high of $75.25 set on Aug. 22. The close of $55.99 on Dec. 31 was an important input to my proprietary analytics and the annual pivot remains at $66.78. This level has been a magnet between Feb. 21 and July 15. The close of $66.90 on June 28 was another important input to my analytics and the semiannual risky level at $81.90 remains above the chart. The monthly pivot for August at $72.15 and the quarterly value level for the third quarter at $57.04 expire at the end of this week on Aug. 30.

The weekly chart for Toro

Weekly Chart For Toro

Courtesy of Refinitiv XENITH

The weekly chart for Toro is positive with the stock above its five-week modified moving average of $71.05 and well above its 200-week simple moving average or “reversion to the mean” at $57.66. The 12x3x3 weekly slow stochastic reading ended last week rising to 73.53 up from 71.00 on Aug. 16. Back during the week of April 26 this reading was 95.45 well above the 90.00 threshold as an “inflating parabolic bubble” which popped from $75.13 to a low of $64.42 during the week of May 31, a decline of 14%. A weekly close on Aug. 30 below $71.05 with the stochastic reading declining will be a downgrade to a negative weekly chart.

Trading Strategy: Buy weakness to the annual value level at $66.78 and reduce holdings on strength to the semiannual risky level at $81.90.

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 annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on July 31. The quarterly level was changed at the end of June. 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 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 its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing 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 call a reading below 10.00 as being “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.