Wednesday, January 28, 2009

Maple Leaf Foods (TSX:MFI)

Traditionally, investors flock to the consumer staples stocks in a recession, and among this group are food processing companies. Not surprisingly, many of these food product stocks are showing positive price trends in the midst of an economic slowdown. Stock Trends alerts for these improving trends with a Weak Bearish indicator – a sign that the short-term price trend is improving against the long-term bearish price trend. On the NYSE many familiar food product stocks are now Weak Bearish, including Chiquita Brands International (NYSE:CQB), Dean Foods (NYSE:DF), Del Monte Foods (NYSE:DLM), Kraft Foods (NYSE:KFT), and Smuckers (NYSE:SJM).

Canadian names are also hitting Stock Trend alerts. Maple Leaf Foods Inc. (TSX:MFI) suffered more than most last year – the listeriosis outbreak in one of its plants was nothing less than devastating for the company. But there is mounting evidence that the stock has started to respond to the company’s repaired image. A recent report on insider buying by corporate officers of Maple Leaf gives added fuel to the improving bullish picture for MFI. The stock is projected to be a Stock Trends Bullish Crossover next week – signifying the start of a new long-term bull trend. This is a good buy signal for investors looking for exposure in this relatively strong sector.

The important trend line for MFI at this moment is the short-term (13-week) moving average. It should offer investors key support signals moving forward. The trend line support is at the $9.90 level, also a price support level framed by the stock’s price pattern last September and its breakout to the plus-$10 region in early December. Shareholders of MFI should be expecting a bounce off this level and valuations above $12 as the sector continues to attract capital. Trading volume in MFI has been weak recently, but will have to improve to fuel this bullish scenario. Every bullish trend needs strong and improving trading activity.

Barring another unexpected announcement about listeriosis, MFI should perform in a predictable pattern. If the stock fails to rally off the support level, the premises of the trade fail. In that result this could be a position of short duration. A stop-loss order at $9.70 would limit losses, and also force the trade to perform quickly. The Bullish Crossover is a helpful entry signal, but the crucial trend element guiding this trade is the support level isolated by the short-term trend line (13-week moving average) and the previous price pattern. Investors should learn to establish these specific types of parameters to a trade before buying. Doing so will limit losses and foster specific expectations of the way the stock will perform. No trade has certainty on its side. But traders can develop certainty of their actions – that is, when they buy and when they sell.
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