Shares of Campbell Soup (NYSE:CPB) rallied on Wednesday following the company’s latest earnings report. Despite a marginally lowered outlook, CPB stock held in. On the charts the stock scored a technical breakout that could serve it well in coming weeks.
As astute readers of my column know, I follow a so-called “top down” approach to the markets, meaning that I respect the fact that the dog wags the tail and not the other way around. In markets this means that most stocks in any given group or sector will directionally move together. As such, if one does not follow the trend of the sector or group, one statistically speaking has a much lower probability of profits in any given trade.
Following this top down approach also means paying attention to relative strength and relative weakness of sectors versus each other as well as relative strength of stocks within those sectors.
CPB Stock Charts
At the bottom of the multi-year chart we see that CPB stock as a ratio versus the consumer staples sector has shown good relative strength year-to-date. This relative strength is notable particularly because the consumer staples sector itself is higher by about 25% year-to-date.
Also on this chart we see that the price of Campbell stock this past August reached the very upper end of its two-year range, which currently coincides with the red 200-week moving average. A breakout above these resistance points could be meaningful for the stock.
On the daily chart we see that the 2019 year-to-date uptrend is well intact and that as a result of the Dec. 4 rally, CPB stock scored a marginal breakout of its multi-month consolidation range (black parallels). Additionally, my proprietary B2 Reversal indicator printed a buy signal on Dec. 3, which was further confirmed the next day by the follow-through rally.
From here, a next upside target for CPB stock is around the $51 area while any strong bearish reversal on a daily closing basis is an initial stop loss signal.
The highest probability trade, however, that sets up well for this position in Campbells Soup stock is to sell an out-of-the-money put spread (options credit spread) in a very specific way. I am hosting a special webinar Friday, Nov. 6 to go over this setup in detail. Register here.
Special free webinar: How to generate stock market income with options credit spreads like a pro. Register HERE.