Chicago Bridge & Iron (CBI) Could Be In For YUUGE GainsChicago Bridge & Iron Company has been in a long bearish trend since 2014. On multiple occasions through this trend, three of the technical indicators discussed below are at similar or lower levels, than they are now. These instances have resulted in nice short-term gains for the stock. I have laid out the reasons and levels to which the stock may gain while it most likely continues its long-term trend.
When we look at technical indicators, the relative strength index (RSI) is at 23.5869. RSI tends to determine trends, overbought and oversold levels as well as likelihood of price swings. I personally use anything above 75 as overbought and anything under 25 as oversold. Currently the RSI oversold.
The positive vortex indicator (VI) is at 0.6590 and the negative is at 1.2802. When the positive level is higher than 1 and higher than the negative indicator, the overall price action is moving upward. When the negative level is higher than 1 and higher than the positive indicator, the overall price action is moving downward. The negative value is high, meaning the stock has been moving down, however, it is trending downward. This means the stock has ended its downward trend and should begin to move up soon.
The stochastic oscillator K value is 11.3245 and D value is 11.1765. This is a cyclical oscillator that is highly accurate and can be used to identify overbought/oversold levels as well as pending reversals and short-term activity. I personally use anything above 80 as overbought and below 20 as oversold. When the K value is higher than the D value, the stock is trending up. When the D value is higher that the K value the stock is trending down. The stochastic is oversold. The D value is below the K and the stock is beginning to move up.
SPECIFIC ANALYSIS
I have created an algorithm (called SAG gauge) which signals when stocks are truly overbought and oversold. The algorithm indicates when a particular stock meets multiple criteria which culminates in an oversold or overbought alert. That signal will occur over the next two days. The only thing holding this signal from going off now it continued gains in the stock. Because this signal will go off after continued gains, now is the best time to enter a position and take greater advantage of the pending upward movement.
Upon back-testing this indicator, it has signaled oversold status 18 times in the history of the stock. The stock gains at least 0.20% over the following 30 trading days after the indicator date. Eighty percent of the time, the stock gains 3.50% and seventy percent of the time gains 7.25%.
In the history of this stock, it always gains a minimum of 1.88% when the negative VI conducts a double cross above its current level at the same time the RSI is at or below its current level. The additional study requires the stochastic to be oversold as it is today. Six similar occurrences were studied. The median gain for the stock is 10.18% and the gain takes a median of 6 trading days to occur. Four of these six instances occurred at the same time the SAG gauge determined the stock to be oversold. The minimum gain for these instances is 6.81% and the median gain is 11.70%. All of these statistical gains happen fast so anticipating the stock to go up and up is not recommended. The maximum movement for this stock could occur within the next 10-15 days.
Considering the RSI, VI and stochastic levels, the overall direction favors a move to the downside. Based on historical movement compared to current levels and the SAG gauge, the stock could gain at least 7% over the next 31 trading days if not sooner.
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A POSITIVE MOVING AVERAGE CROSS FOR GMOn March 24, 2017 the General Motors Company (GM), crossed above its 150 day moving average. Historically this has occurred 20 times since 2010. When this happens, the stock gains a minimum of 0.475%, has a median gain of 5.466% and maximum gain of 16.159% over the next 24 trading days. On March 23, 2017, the stock broke below the 150 moving average and broke above the moving average on the following day. This has occurred three times since August 2016 and the stock gained 6.686%, 5.674% and 16.159%.
Current General Motors chart from TradingView
When we take a look at other technical indicators, the relative strength index (RSI) is at 32.6033. RSI tends to determine overbought and oversold levels. I personally use anything above 75 as overbought and anything under 25 as oversold. The current reading declares the stock just flirted with the oversold mark and may begin to move upward.
The true strength index (TSI) is currently -5.3793. The TSI determines overbought/oversold levels and/or current trend. I solely use this as an indicator of trend as overbought and oversold levels vary. The TSI is double smoothed in its calculation and is a great indicator of upward and downward movement. The current reading declares the stock is trending downward which could be skewed due to the market drop on March 21. Even though it is pointing downward four of the last five times it was near this level, the stock reversed upward.
The negative vortex indicator (VI) is currently 1.3790. The VI determines current trend and direction. When the positive level is higher than 1 and higher than the negative indicator, the overall price action is moving upward. When the negative level is higher than 1 and higher than the positive indicator, the overall price action is moving downward. The current reading declares the stock is trending downward, but it is near the reverse point where the stock normally goes up big.
Considering the moving average crossover, RSI, TSI, and VI levels, the overall near-term stock direction appears to be trending upward. Based on historical movement compared to current levels, the stock could gain at least another 7.86% over the next four weeks.
DISCLOSURE: I currently do not have positions in the stock mentioned above. I most likely will not enter a position within the next 72 hours. Historical movements and technical indicators should never be the sole basis for entering positions involving risk. Make sure appropriate research is conducted prior to taking any risk in a marketplace.
