Since my last update on natural foods grocer Whole Foods Market (WFM) on Nov. 8, WFM stock has mostly consolidated its post earnings sell-off by trading in a constructive sideways fashion, building a base as it worked off the oversold conditions.
Yesterday, during an interview on CNBC, Whole Foods’ co-CEOs reaffirmed the company’s previous commitment to have 1,200 stores in the U.S. Also yesterday, Whole Foods opened its first store in Brooklyn, and the pair of headlines helped spark a rally in WFM stock.
The store opening has caused quite a buzz because this specific site had been planned for just about 10 years; however, the company had struggled with opposition from parts of the local community and environmental issues on what previously was an industrial site.
Furthermore, the store’s location is near one of America’s most polluted waters, creating further concerns that it would only add to the pollution. However, Whole Foods built a very eco-friendly store, which led to the easing of some of those concerns. WFM, which continues to expand at a good clip, created several hundred jobs at its Brooklyn site, paying above-average wages and benefits that make for an attractive employer.
On to the charts.
Since its 11% selloff following Q3 earnings, WFM stock has worked itself toward the lower half of its multiyear uptrend, thus bringing it into a more neutral price area from this longer-term view, particularly compared to its overbought readings from the second half of October, which I warned of on Oct. 23.
With the longer-term chart no longer overbought, my focus shifts to the daily time frame to sniff out any trading opportunity.
Although WFM stock dropped another 4% in the weeks following its third-quarter earnings announcement to a low around $55 on Dec. 6, those intraday lows were quickly reversed and shares closed higher on the day. From my point of view, it was a powerful statement by the bulls that they managed to reverse another selling attempt on part of the bears.
With Tuesday’s 2.18% rally, WFM stock broke to the upper range of a multiweek consolidation period and right into its 100-day simple moving average (blue line).
From here, if WFM stock can overcome the $57.60 area — and thus its 100-day MA — a bigger move could be in the cards. I’d put the first target around the $60 area, followed by $64, which would result in a gap-fill of the Nov. 7 post-earnings selloff.
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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.
