Herman Miller Tracks Its 'Reversion to the Mean'

Herman Miller, Inc. (MLHR) makes office furniture concentrating on the education and healthcare environment in addition to general office needs. The stock set its all-time intraday high of $41.85 on Jan. 24 then crashed by a bear market 28.4% to its 2018 low of $29.95 set on March 27. Whenever you see a stock drop significantly from an all-time high, the best way to measure the consolidation off the low is to use the measurements known as Fibonacci retracements. You will see this study on the daily chart below.

Herman Miller shares closed Monday at $37.05, down 7.5% year to date and in bull market territory at 23.7% above the 2018 low of $29.95 set on March 27. Given the volatile ride of 2018, the stock is also in correction territory at 11.5% below its all-time high of $41.85.

Analysts expect Herman Miller to post earnings per share of 65 cents when the company reports after the closing bell on Wednesday, Sept. 19. The company has beaten estimates two quarters in a row, but the reactions were mind-boggling. On March 21, with the stock closing at $37.33, the company reported better-than-expected earnings that included poor guidance, and by March 27, the stock set its 2018 low of $29.95. Then, the stock popped from $34.45 on July 2 to a secondary high of $40.10 on July 3 on a positive reaction to earnings. (See also: Everything Investors Need to Know About Earnings.)

The daily chart for Herman Miller

The daily chart for Herman Miller shows the bear market decline from the Jan. 24 all-time high of $41.85 to the 2018 low of $29.95 set on March 27. The horizontal lines are the Fibonacci retracement levels of this 28.4% decline. Since the earnings report released on July 2, the 61.8% retracement of $37.31 has been a magnet and is slightly above my quarterly pivot of $36.88. These levels have been magnets since July 2.

The weekly chart for Herman Miller

The weekly chart for Herman Miller is negative, with the stock below its five-week modified moving average of $37.37 and well above its 200-week simple moving average of $31.82, which is the "reversion to the mean," last tested during the week of May 4, when the average was $31.22. Note how the "reversion to the mean" has been a magnet since the week of Jan. 8, 2016. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 66.04 this week, down from 69.25 on Sept. 14.  

Given these charts and analysis, investors should buy Herman Miller shares on weakness to my semiannual and monthly value levels of $34.07 and $31.09, respectively, and reduce holdings on strength to my annual risky level of $43.38. My quarterly pivot is at $36.88. (For more, see: Trade War Threatens Small-Cap Stock Juggernaut.)