SAFM Breaks the Bottom

Wealth Blueprint Letter | July 2nd, 2015

Sanderson Farms, Inc., an integrated poultry processing company, produces, processes, markets, and distributes fresh, frozen, and prepared chicken products in the United States. The company sells ice pack, chill pack, bulk pack, and frozen chicken in whole, cut-up, and boneless form primarily under the Sanderson Farms brand name to retailers, distributors, and casual dining operators in the southeastern, southwestern, northeastern, and western United States, as well as to customers who resell frozen chicken in the export markets. Its prepared chicken product line includes institutional and consumer packaged partially cooked or marinated chicken items for distributors and food service establishments.

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Take a look at the 1-year chart of Sanderson (NASDAQ: SAFM) below with my added notations:

SAMF had formed a key support level at $75.00 (green) over the past 5 months. In addition, the stock is declining against a short-term, down trending resistance level (red). These two levels combined had SAFM stuck within a common chart pattern known as a descending triangle. Eventually, the stock had to break one of those two levels, and yesterday SAFM broke through the support.

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The Tale of the Tape: SAFM broke its $75.00 triangle support. A short trade could be made at or near $75.00. A break back above the prior support could be an opportunity to enter a long trade.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

“No central bank has ever printed this much money.”

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!
Christian Tharp, CMT

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