The Stock: Empire Co. Ltd
Yesterday's closing price: $46.38
Trend: After showing a little spark in November, the Toronto Stock Exchange consumer staples sector performed in a more muted fashion during much of this month. However, grocer stocks in this group are now showing up in the Stock Trends filters for stocks breaking out of long-term bearish trends.
Competition among the grocers has always weighed on stock valuations, and December was proving to be chilly for the group as the market digested a worrisome price war signalled by Canada's biggest food retailers heading into the holiday season.
But something happened at the checkout: investors like the value in their shopping bags. Many food retailers are finishing off the final quarter handsomely, outpacing the S&P/TSX composite index.
The Trade: Empire Co. stood out last week with its sector-leading 5.4-per-cent gain. Best known for its Sobeys stores, it is also behind the familiar banners of IGA, Price Choppers, and Foodland. It also has significant real estate operations.
Like other food retailer stocks, Empire's shares struggled in the second and third quarters of the year, dropping from a spring high of $55.05 to $40.20 in August. However, the stock turned Stock Trends Weak Bearish - indicating the share price had elevated above the 13-week moving average trend line - in November when it rallied above $45.
After slipping a bit and stalling out in early December, the jump in Empire's shares last week takes the current share price above the long-term primary trend line (Stock Trends uses the 40-week moving average as the primary trend line.)
The stock's improving trend picture should be a welcome mat for investors anxious about the stock market's near-term prospects and looking for more defensive equity exposure. Empire's stock remained in a bullish trend through much of the market downturn last year, its relative performance to the rest of the market a feature of consumer staple stocks in bad times.
The Stock Trends Weak Bearish indicator generally precedes a Bullish Crossover - the signal that the long-term trend has changed to bullish - and often points to a good entry level for long positions. Transactions of Empire shares last week were 43 per cent above the weekly average for the fourth quarter, a sign that investors see more ahead from its positive earnings trend. While not a high-momentum trade, Empire's emerging bullish trend is compelling for investors taking profits on trades in other extended sectors.
The Upside: The fact the share price leapt above the $46 level that capped the stock's November rally is an important cue for investors, since the region was an initial support level as the stock dropped last spring. Also providing a foundation is the 13-week moving average trend line - it proved to be a platform of support from which the stock rallied last week. Expectations over the coming quarter - even if the TSX market retreats - should be positive. Immediate share price resistance at the $48 level should give way to the $50 mantle.
The Downside: After last week's move, the $45 mark is an important cue for an early exit. A share price drop below that level indicates it has fallen below the primary trend line and would also put the stock back in Stock Trends Bearish territory again. An immediate drop below $44 would indicate that the trend scenario presented here has failed.