WFM – Whole Foods Stock Painfully Overpriced

by Serge Berger | October 23, 2013 11:18 am

Whole Foods Market (WFM[1]) was a stock I took a look at three weeks ago, with my take on the natural-foods supermarket chain titled ‘Whole Foods Stock Feels Ripe For A Run[2].’

Since my analysis on Oct. 1, WFM stock has rallied just about 10% and reached my upside target for the time being. So don’t buy Whole Foods stock now that it is overbought.

WFM is scheduled to report earnings in two week on Nov. 6, which is the next big event date. There could be a move for Whole Foods stock  around that time at which I’ll reassess WFM.

When analyzing the charts of a madly trending cult stock like Whole Foods, it is of great importance to never lose sight of the mother trend.  In the case of WFM, the mother trend has been firmly in place since 2009 and aside from a minor break in April continues to show resiliency this year .

Particularly the upper end of this multi-year trading range has been well respected, which with the recent rally has once again been reached.

Another important aspect of analyzing a strongly trending growth stock like WFM is to look at both near- and long-term charts for confluence areas of support and resistance.  From this long-term chart now we have a resistance area around the $64 area for Whole Foods stock.

wfm multi year1 WFM   Whole Foods Stock Painfully Overpriced
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When looking for reference areas on the daily chart of WFM, given the fact that Whole Foods stock seems to be screaming to fresh all time highs on a daily basis, reference areas in the traditional sense are non-existent.

This means we have to dig a little deeper to find resistance areas in this time-frame.  In my analysis on Oct. 1, I drew a consolidation area in the form of a bullish wedge on the daily chart, which simply drawn a little differently is the bull flag that I drew on the below chart.  Consolidation areas come in different shapes, and whether it is a bullish wedge or flag pattern, both are bullish continuation shapes.

If we apply a classic extension target analysis on the below daily chart by adding the distance of the”flag pole” from the August lows to the mid September highs to the bottom of the flag pole, we arrive at a price target around the $64 – $65 level, which also coincides with the resistance area of the multi-year chart above.

Beyond that, the rally in WFM since August has been steep and is in need of a good rest.  Profit taking is called for here for investors in the stock while quicker traders may even try a cute short in here.

wfm daily1 WFM   Whole Foods Stock Painfully Overpriced
Click to Enlarge

Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the “Essence of Swing Trading” eBook by clicking here[3].

Endnotes:
  1. WFM: http://studio-5.financialcontent.com/investplace/quote?Symbol=WFM
  2. Whole Foods Stock Feels Ripe For A Run: http://investorplace.com/2013/10/whole-foods-stock-charts-wfm/
  3. clicking here: http://www2.marketfy.com/l/15492/2013-10-08/5htq5

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