Maple Leaf Foods, is out of the scope of my normal mining / index / currency focus, however with corn, wheat, and other food commodities making new 52 week highs, putting a food packaging company (mostly meat) into a portfolio could be interesting. Coincidentally a friend of mine is doing a project requiring a look at this type of stock.
What makes Maple Leaf Foods more exciting as a mid-term trade (3-6 months) is that the
Ontario teachers pension fund dumped their holdings last November. This can be seen by the massive red volume spike on the graph below. The stock has held on relatively well is above key moving averages. Technicals on both the daily and weekly time frames look relatively bullish. And for the kicker.... February 24th, 2011 is
Maple Leaf Foods earnings announcement for the 4th Quarter of 2010 and their annual report for 2010.
First thing to notice is the Gap down that occurred in November when the pension fund dumped their holdings. The top of the gap has the potential to be short term resistance so if you were trying to short term trade this it would make sense to take 1/2 or full profit when this gap gets filled.
Moving averages.... What is significant about this stock is it is currently sitting on both the 20 day moving average and the 50 day.. Which should provide relatively strong support for any sell pressure that comes in. The 200 day, is about 80 cents below the price, which is significant but should be again very strong support for this stock especially if food prices continue in their current direction.
Volume: not much to say as it has been distorted based on the pension fund selling their shares. One thing to notice is the increase in buy volume coming in at the bottom in mid December. These buyers will likely continue to buy at that level, therefore increasing support below the stock.
MACD: is a momentum study, the way I like to read it is two fold. There is short term and long term momentum measured. The former is measured by the histogram, the latter by the position of the MACD line. The Histogram was recently negative and is almost flat, however, it is expected to start seeing increasing larger positive ticks over this week especially if earnings are solid.
The MACD line is trialed by a 5 day moving average named the Signal line. Crossovers of the blue line (MACD) and the white line are buy and sell signals. These cross overs occur when the histogram turns positive or negative as the histogram measures the distance between the blue and the white line. Is the MACD line is above the 0 level the longer term momentum is bullish. Currently the stock is looking for direction as it is directly on the 0 level. The direction in my opinion will come from the annual report.
So why so bullish? the Slow Stochastics shows momentum is up and the yellow line (K) is sitting at 27, which indicates that the stock isn't over sold or over bought but doesn't have much down pressure left. There is plenty of room for this stock to run to the upside before getting over bought.
Now.... to put how important this week is for this stock, lets take a step back and analysis a weekly chart.
The yellow moving average on the chart is the 200 Week moving average. This is a Monster level and last week the stock closed above it. Generally you want to wait for confirmation an additional close above support to jump into the stock, however this is a weekly and their is earning announcement. The fact that the stock is trading so close to this level means that this stock is a very attractive low risk entry as there is so much support very close (200w MA @ 11.29, 20d MA @ 11.51, 50d MA @ 11.43). Therefore, purchasing this stock close to support and placing a stop-loss below these levels provides a relatively quick exit with high potential gains.
However, the 20 week moving average should be considered as it is trading above this stock at 11.78.
This moving average provides a more conservative entry as a way to entry into the stock would be waiting for a breach of this 20 week MA and placing a stop just below this level.
Last thing to mention is the slow stochastics on the weekly time frame is very encouraging showing momentum up and lots of room for this stock to run before it becomes over bought. Since the weekly chart looks so attractive as well, this is why i would classify this stock as a mid-term trade and potentially long term depending on your style.
Potential targets..... well the 11.78 next week could be the likely target sitting 20 cents above the current price, which would be a 1.7% gain. However, longer term target would be the top of the gap at 12.38. At that stage it would be likely to see a pull back before making a run to $13 and possibly $15 over 6 months or so.
