Vulcan Materials Stock Holds Quarterly Value Level After Earnings Miss

Vulcan Materials Company (VMC) provides construction materials such as gravel, crushed stone, and sand. The company reported earnings on Nov. 6 and missed analysts' estimates. The stock set its all-time intraday high of $152.49 on Sep. 30, and the weekly chart was negative when the report was released.

When a stock's weekly chart is negative ahead of earnings, the odds favor a negative reaction. This was the case for Vulcan, but weakness on Nov. 6 was to $131.50, between its quarterly value level at $133.69 and its 200-day simple moving average at $130.40, which is the buy zone given that the stock was above a "golden cross" on its daily chart.

The stock closed last week at $140.52, up 42.2% year to date and in bull market territory at 56.1% above its Dec. 26 low of $90.04. Vulcan Materials shares are 7.8% below the all-time intraday high of $152.49. The stock is not cheap, with a P/E ratio of 30.71 and a puny dividend yield of 0.88%, according to Macrotrends.

The daily chart for Vulcan Materials

The daily chart for Vulcan Materials shows that the stock has been above a "golden cross" since April 2, when the 50-day simple moving average rose above the 200-day simple moving average to signal that higher prices lie ahead. Note that Dec. 26 was a "key reversal" day, when the stock set its cycle low and then closed above the Dec. 24 high. This was a buy signal.

The close of $98.80 on Dec. 31 was input to my proprietary analytics and resulted in an annual risky level at $125.32 This level became a pivot (or magnet) between April 30 and May 31. The close of $137.31 on June 28 was the mid-year update to my analytics. This resulted in a semiannual risky level at $160.07, which is above the chart. The close of $151.24 on Sep. 30 was another input to my analytics and resulted in the fourth quarter value level at $133.69, which was tested on Nov. 6. The close of $142.09 on Oct. 31 was the most recent input, and Vulcan Materials' monthly risky level is $160.39, which is above the chart. The stock is between its 200-day simple moving average at $131.86 and its 50-day simple moving average at $146.29.

The weekly chart for Vulcan Materials

The weekly chart for Vulcan Materials is negative, with the stock below its five-week modified moving average at $142.34. This indicates risk to the 200-week simple moving average, or "reversion to the mean," at $120.41, which held as support during the week of March 22, when the average was $112.91.

The 12 x 3 x 3 weekly slow stochastic reading is expected to decline to 47.15 this week, down from 58.03 on Nov. 15. At the Sep. 30 high of $152.49, this reading was above 90.00, making the stock an "inflating parabolic bubble," which led to the decline to $131.50 following earnings, a decline of 13.7%.

Trading strategy: Buy Vulcan Materials stock on weakness to its quarterly value level at $133.68 and reduce holdings on strength to the 50-day simple moving average at $145.29. 

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. 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.