Altria (NYSE:MO) has gotten smoked. But for investors craving income and stock appreciation, are shares a quick fix in today’s risk-off environment? Let’s take a look at what’s happening off and on the price chart in MO stock to make a stronger risk-adjusted determination on buying or holding off on the shares.
Just when many investors may have thought the worst was over, along comes Monday’s nasty tumble deeper into a bear market. The price route systematically left its mark on companies ranging from Amazon (NASDAQ:AMZN) to Yeti Holdings (NYSE:YETI) and most everyone in-between, except last man standing Zoom Video (NASDAQ:ZM). And MO stock, despite its appeal as a low-volatility and defensive stock, wasn’t immune.
A second emergency rate cut by the Fed and fast-growing, government-directed hard closures to guard against a larger coronavirus pandemic fueled the sell-off as the necessary actions further raised the specter of uncertainty and a global recession among investors. For its part the S&P 500 index completely unwound Friday’s massive rally off deeply oversold conditions and sunk more than 11%. The broad-based, large-cap average has now fallen to within 2% of 2018’s corrective bottom.
More far reaching, the benchmark has already punished investors with a much larger and lethal decline of 28% in less than four trading weeks. Even 2018’s narrowest of meet-and-greet bear markets took the S&P 500 down just 20% over a full three months. It’s been hard knocks for market bulls to say the least.
Still, when looking at the price chart of index constituent Altria’s near 50% dividend-adjusted bear market and one approaching three years in duration, it begs the question: “Is the worst yet to come?” Could MO stock be a — “cough, cough” — canary in the tobacco field?
MO Stock Monthly Chart
Source: Charts by TradingView
It almost seems like a good time to consider taking up a vice like smoking or maybe a whiff, hit or gulp of a cannabis product, a market which tobacco giant Altria has been rightfully eyeing and investing in already. But don’t be tempted by MO stock.
Pragmatically, Altria’s near-9.25% annualized dividend is a concern. The worry comes despite the company’s solid history of payouts in the face of obvious legal challenges and full support of Wall Street’s sell-side promoting the income stream as safe. Okay, maybe I’m a gloomy Gus or a doubting Thomas? Moreover, even if investors are confident in capturing those dividends, the MO stock chart illustrates just how unsafe shares have been for nearly three years. It also emphasizes a bear market still positioned for additional downside.
Technically, shares of Altria have been grinding their way lower in a classic downtrend. The pattern is defined by a series of lower highs and lower lows since hitting a peak in stock price back in June 2017. Drilling down that price action, there is some hope for MO investors as this month’s doji candle is setting up a potential low in shares. But again, don’t be fooled by the advertising.
Currently Altria stock’s pattern low is holding a loose test of the 50% retracement level tied to the financial crisis bottom and ‘tighter’ channel support line. That’s the good news. And even as an admitted skeptic, it looks tempting.
More important, if you believe in the power of trading with the trend and can appreciate the influence of MO’s bearish stochastics crossover within neutral territory, investors shouldn’t be duped. Net net, rallies in Altria should be viewed as counter-trend opportunities to exit a long position or for shorting shares into price resistance until additional technical support for a bottom emerges.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.