Medtronic Stock Pops to New High on Earnings Beat

The world's largest medical device company Medtronic PLC (MDT) reported better-than-expected earnings before the opening bell on Tuesday, Aug. 20, and the stock gapped higher to a new all-time intraday high at $109.70. The technical setup was positive, with the stock above a "golden cross" on its daily chart with a positive but overbought weekly chart.

Medtronic stock closed Tuesday at $106.91, up 17.5% year to date and in bull market territory at 30.9% above its 52-week low of $81.67 set on Jan. 8. The stock was above its annual pivot at $100.62 days before reporting earnings, which favored an upside move.

Medtronic survived currency fluctuations when beating earnings estimates. The company's diabetes group showed strong growth as did its restorative and minimally invasion therapies group. However, the cardiovascular group saw a decline in revenues.

The daily chart for Medtronic

The daily chart for Medtronic shows the stock above a "golden cross" since June 28, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. On Dec. 31, the stock closed at $90.96, which was an input to my proprietary analytics. This resulted in its annual pivot at $100.62, which was a magnet between July 17 and Aug. 15, as the company was staged for a positive reaction to earnings reported on Aug. 20. The stock is well above its semiannual, monthly, and quarterly value levels at $98.29, $89.93, and $88.93, respectively.

The weekly chart for Medtronic

The weekly chart for Medtronic is positive but overbought, with the stock above its five-week modified moving average of $101.52. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $84.69. The "reversion to the mean" was last tested as a buying opportunity between the weeks of Jan. 11 and April 19, when the average was $82.60. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 89.40, slipping from 90.45 on Aug. 16. A reading above 90.00 indicates that the stock has become an "inflating parabolic bubble."

Trading strategy: Buy Medtronic shares on weakness to the annual pivot at $100.62 and reduce holdings given the recent stochastic reading above 90.00.

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, most recently 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 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.