Shares of agricultural seeds and pesticides company Monsanto (MON) rallied Wednesday after the company reported its fiscal fourth-quarter results.
Monsanto’s rally likely was aided by the broader market’s violent post-FOMC meeting minutes bounce, but nonetheless, MON stock also held a technically crucial support line, providing a clearly defined line of support for traders to lean against for a further bounce.
Specifically, Monsanto lost an adjusted 27 cents per share — 4 cents worse than analyst expectations for a 23-cents loss. Still, that figure was 43% better year-over-year. Revenues of $2.63 billion were up 20% year-over-year and did manage to beat estimates for $2.41 billion.
The company also provided outlook that said the seed business should improve by about 10% next year.
On the back of this mixed report, MON stock initially dropped a little more than 2% at the start of Wednesday’s trading, but within 10 minutes the stock was up on the day, likely aided by the lift in the broader tape.
At its Wednesday lows, the materials sector (to which Monsanto belongs) was off more than 7% since the mid-September highs, staged a similar bullish reversal, bringing it back above its 200-day simple moving average after falling through it the day prior. In other words, the bulls managed to defend support for the entire materials sector Wednesday.
Monsanto Stock Charts
The multiyear logarithmic weekly chart of MON stock reveals that after a brief intraday dip below it, the 2010 uptrend line once again held as support. In the bigger picture, however, the June top in the stock was rather important, thus it’s too early to declare a new bull trend in the stock just now, but a good oversold bounce is very possible off this support line.
On the daily chart, note that after MON stock broke below its black support line and 200-day simple moving average in early September, it then retested these lines from below before ultimately falling lower again. With Wednesday’s intraday move lower, the stock pushed well into the blue support band that stretches back to early 2013. Thus far, the relative strength index at the bottom of the graph has also formed a higher low vs. its July lows and is thus flashing some positive divergence against price.
All in all, MON stock now offers well-defined risk/reward for active investors and traders to play an oversold bounce back toward the $115 area and the 200-day moving average, using Wednesday’s lows as a stop-loss area.
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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.
