by Serge Berger | February 5, 2014 8:22 am
After the close of trading on Monday, Yum Brands (YUM) put out a fourth-quarter report that wasn’t particularly stunning on its face, but that still sent a jolt throughout YUM stock.
Yum Brands’ earnings came to 86 cents per share to beat analyst estimates by 6 cents. However, YUM missed on the top line with $4.17 billion vs. the consensus for $4.26 billion. A good portion of the conference call and analyst focus in the report was on China, where the company saw same-store sales slip by 4% year-over-year, which at least in part can be blamed on new concerns over bird flu.
What seemed to get the juices of YUM stock investors going was the wording around the company’s profitability. More specifically, Yum Brands said it would see long-term annual EPS growth of at least 10%, and long-term operating profits up between 5% and 10% in all three of its units — Pizza Hut, Taco Bell and KFC. The company also reiterated its bullish view on emerging-market growth and gave guidance that pleased analysts.
As a result of all the positive news, YUM stock rocketed almost 9% on Tuesday, which through a technical lens brought it right back into the middle of a longstanding trading range.
On the weekly multiyear chart below, YUM’s trading action since April 2012 has been decidedly boring for the trend-following crowd, although it has offered opportunities to more nimble market participants. The bottom end of this trading range has now been tested at least eight times since 2012, while the top end of it saw a marginal violation/breakout in November of last year (but that quickly led to a selloff back toward the lower end of the range).
This type of action can be incredibly frustrating for traders and investors looking for a more sustainable move, but rather than imagining something that isn’t there, I am here to point out the facts. And the facts for now are that YUM stock has been (and continues to be) a frustrating stock for traders looking for breakouts and/or breakdowns and/or follow-through buying and selling.
On the daily chart, although Tuesday’s rally came on a breakaway gap, it thus far merely pushed YUM stock right back into the middle of the aforementioned trading range and to the 100- and 200-day simple moving averages.
For my part, while options traders have enjoyed selling puts at the lower end of the trading range and selling calls on the upper end, YUM stock now needs to show that it can keep its bid from Tuesday. If and when the stock can do so, it would again work its way toward the upper end of the trading range (i.e., the $76 – $78 area).
Beyond this, though, unless the upper end of the big-picture trading range can be broken in a more meaningful way, investors are better off looking elsewhere for opportunities on the long side.
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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 e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
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