Shares of packaged foods manufacturer ConAgra Foods (CAG) made a technically significant move higher Thursday after the company’s earnings topped analyst forecasts. Given the promising construct of the broader consumer staples sector, active investors and traders could hop on board the renewed upside momentum in CAG stock.
Before the start of trading on Thursday, ConAgra Foods reported first-quarter earnings that grew 5% to 39 cents per share, beating analyst estimates by 4 cents. That actually came on a 12% decline in revenues to $3.7 billion, which fell shy of the consensus for $3.77 billion.
In terms of outlook, ConAgra is looking for current-quarter earnings of 62 cents per share, which is in line with year-ago profits and better than consensus estimates for 60 cents.
In the second half of this week, large-cap stocks climbed again, and now one of the better-looking S&P 500 sectors (at least through a technical lens) is consumer staples. On the daily chart below of the Consumer Staples SPDR (XLP), note the V-shaped reversal off the early August lows, which took place right at the rising 200-day simple moving average (red line). In the meantime, the sector has worked itself back up to the June highs, where it is now consolidating and readying another push higher.
CAG Stock Charts
CAG stock, which is part of the consumer staples sector and thus part of the aforementioned XLP, appears constructively positioned through a multiyear lens. ConAgra continues to hold its 2008 uptrend line, which it most recently bounced off in June. The relative strength index (RSI, bottom of the chart in blue) also is curling higher, thus not showing any negative divergences from price.
Lastly, on the daily chart, the trade setup is clearly visible. Note that after gapping down in June, CAG stock later that month settled at a higher low versus its late-February lows. The stock then rallied and made another higher low in early August before pushing higher and past the diagonal resistance line (black).
During the past couple weeks, CAG stock consolidated just above this resistance line. Thursday’s 4.6% rally confirmed the breakout.
Active investors and traders could now look to get long the stock, using Thursday’s lows as a last resort stop-loss area, with an upside price target near the $36 level.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
