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McCormick’s Pop on Earnings Beat Provides an Opportunity to Book Profits

McCormick & Co.  (MKC) is a leading provider of spices, herbs, seasonings and condiments offered around the world. The company reported better-than-expected earnings and raised guidance before the open on Tuesday. The stock traded higher and moved above its fourth-quarter pivot at $167.05. My call is to book profits with the stock between its quarterly pivot and its all-time intraday high of $171.09 set on Sept. 19.

The stock closed Monday at $156.30, up 12.3% year to date and in bull market territory 31.3% above its Jan. 24 low of $119.00. My reason for caution is that the weekly chart ended last week negative and despite Tuesday’s pop the weekly slow stochastic reading is projected to decline this week.

The stock is not cheap fundamentally as its P/E ratio is elevated at 29.98 and the dividend is not compelling at 1.45%, according to Macrotrends.

Here’s what the charts say.

The Daily Chart for McCormick

Courtesy of Refinitiv XENITH

McCormick has been above a “golden cross” since Dec. 6, 2017, when the stock closed at $103. A “golden cross” occurs when the 50-day simple moving average rises above the 200-day simple moving and indicates that higher prices lie ahead. This signal remains in play and weakness to its 200-day SMA provided a buying opportunity at $125.57 on Jan. 24, when its 2019 low of $119.00 was set. This low was caused by a negative reaction to earnings reported on Jan. 24. The 2019 high of $171.09 was set on Aug. 18. The 2018 close of $139.24 was input to my proprietary analytics and its annual value level remains at $134.90. The June 28 close of $155.01 was an input to my analytics and the semiannual value level remains at $152.46. The close of $156.30 on Sept. 30 was a new input to my analytics and the fourth-quarter pivot at $167.05 has been exceeded Tuesday. The risky level for October is above the chart at $184.28.

The Weekly Chart for McCormick

Courtesy of Refinitiv XENITH

The weekly chart for McCormick ended last week with a negative weekly chart, but it will be upgraded to neutral this week given a close on Friday above its five-week modified moving average of $161.77. The stock is well above its 200-week simple moving average or “reversion to the mean” at $113.48. The 12x3x3 weekly slow stochastic reading is projected to fall to 51.59 this week down from 54.45 on Sept. 27.

Trading Strategy: Reduce holdings with the stock between its quarterly pivot at $167.05 and its Aug. 19 high of $171.09. Buy weakness to the semiannual value level at $152.46.

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 monthly, quarterly and semiannual levels. 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 Sept. 30 established the level for the fourth quarter. The close on Sept. 30 also established the monthly level for October as monthly levels change at the end of each month.

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.

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