Shares of prepared foods company Tyson Foods, Inc. (NYSE:TSN) pushed higher over the past three weeks after an initial negative reaction to its latest earnings report. The quick recovery shows underlying strength in TSN stock, which also looks good through the medium-term time-frame and offers active investors well-defined price levels to focus around.
On Jan. 30, Tyson Foods reported fiscal first-quarter earnings of 74 cents per share, a penny above analyst estimates and improved on a year-over-year basis. The company’s top line stood at $10.82 billion, also above analyst estimates of $10.4 billion. Each of the company’s segments saw good growth year-over-year, and Tyson also reaffirmed its outlook for the full fiscal year.
In the bigger picture, it is noteworthy that Tyson is a consumer staple — a more defensive sector, so thus at the margin, in any broader market contraction these stocks should be somewhat better supported than the more cyclically oriented stocks.
TSN Stock Charts
Looking at the multiyear weekly chart, we see that TSN stock — much like the broader market — spent most of 2014 in a bigger-picture consolidation phase that in this case took the shape of what could be labeled as a bullish pennant pattern.
Like I always say, however, the exact technical name for any given consolidation pattern is not as important as the broader idea that consolidation patterns always either lead to a trade continuation or a reversal in the other direction. For TSN stock, until proven otherwise, the path of least resistance remains higher.
Note also that the Bollinger Bands (blue lines), which measure the strength of a stock’s trend, currently are fairly close together — that ultimately will resolve in one direction or another.
Zooming in on the daily chart, TSN stock’s wide price action after the earnings report sticks out. Tyson Foods initially traded higher but then reversed on the day, closing lower by nearly 3%. More telling, however, was that within just a couple of weeks, the post-earnings drop had fully recovered and the stock now actually trades above the opening print from Jan. 30.
The fact that TSN stock managed to reverse the losses so quickly shows its underlying strength. From here, while the stock might be somewhat stretched in the immediate term, it does is well positioned to push higher and ultimately out off the big pennant formation from the above weekly chart.
Active investors could either buy TSN stock on pullbacks or on a push above $41.70 for an initial move toward $44.
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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.
