Major market upheavals cause major market moves, even anomalies. We're speeding towards this weekend's Jackson Hole meeting, so the market is holding its breath as it waits to learn whether the US Federal Reserve will weigh in on the market's trajectory with information on upcoming interest rate hikes.
So, here is a market anomaly. Why would institutions sell off shares in Pilgrim's Pride (NASDAQ:PPC), one of the largest chicken producers in the US?
New York State Common Retirement Fund, SG Americas Securities, and South Dakota Investment Council have all recently decreased their positions.
Sky high inflation typically boosts food prices, as it is a necessary staple regardless of the economic situation. Rising inflation has also prompted consumers to switch from more expensive beef to chicken.
Pilgrim's pride recently beat expectations when it reported Q2 2022 earnings and its low valuation means it offers an attractive investment. Analysts raised the rating on the stock to a 'strong buy' and a target of $36. But despite this, the stock is falling.
The stock completed a pennant, bearish after the initial 12.4% plunge within seven sessions. A pennant is a continuation pattern marking an interruption within a trend. The downside breakout occurs after supply drowns out demand and sellers seek more discerning buyers at lower prices. The implied target is a repeat of the last move from the point of breakout, aiming at the $26 mark.
Now, let's look a little wider.
We realize that the pennant is a minor move within a larger triangle, whose downside breakout signals a reversal. This pattern's implied target is a repeat of its height from its point of breakout, aiming at the $24 level.
The 50 and 100 DMAs squeezed the price, which broke below the 100 DMA for the first time since February. The stock closed for the second day below the 100 DMA. Then, it declined nearly 28% until the low of March 8. The 200 DMA, which has been reinforcing the trend since April 28, awaits. The RSI appears to have completed an H&S continuation pattern, suggesting momentum will resume falling from its Apr-May overbought levels.
Here we discover that the price has been supported by the broken resistance from September 2021 to February 2022. A break below this significant resistance will likely exacerbate the flip in interest. Both the RSI and MACD provided bearish crosses.
Trading Strategies
Conservative traders should wait for the triangle's downside breakout to reverse the support of the previous resistance from September 2021 to February 2022, then wait for a return move to confirm the renewed resistance.
Moderate traders would wait for the same triangle's downside breakout and a corrective rally for a better entry, if not for confirmation.
Aggressive traders can short at will, provided they accept the higher risk proportionate to the higher reward of moving before the rest of the market.
Trade Sample
- Entry: $30
- Stop-Loss: $31
- Risk: $1
- Target: $26
- Reward: $4
- Risk-Reward Ratio: 1:4
Disclaimer: The author currently does not own any of the securities mentioned in this article.