The Stock: CCL Industries Inc.
Recent price: $26.72
Trend: Often overlooked by investors gravitating toward defensive stocks, the packaging and container industry's link to the stability of the consumer staples and health care sectors is worth considering in the face of a possible double-dip recession. Every can of soup, every vial of medication, every bottle of shampoo and tube of toothpaste delivered to the consumer should remind us of the relationship between these companies.
Although input costs linked to higher petroleum and metals prices can squeeze these industrial suppliers, packaging and container stocks have a history of relative price performance in a market downturn and deliver promising upside to value investors during good times. Many of North America's biggest names in the group are currently in solid Stock Trends Bullish trends, although some have lost price momentum over the last month and turned Stock Trends Weak Bullish. Investors concerned about the strength of the economic recovery and wary of the reflation that is driving mining and energy stocks can look to rebalance their equity exposure to some defensive positions in these packaging and container stocks.
The Trade: A leading Canadian name in this space is CCL Industries Inc. Unlike most U.S. stocks in the industry, CCL's share price has flat lined during this year's stock market rally and did not recover from its bearish trend of the past two years.
Stock Trends Bearish since the end of 2007, the stock has broken out in the past two weeks, moving above short-term resistance and now turning Stock Trends Bullish with the movement of its 13-week moving average trend line above its 40-week moving average trend line. This moving average crossover is a key Stock Trends timing signal for long term trend changes. Although ideal charting evidence of this change in trend would normally show more development of sustained share price momentum, sometimes the Bullish Crossover can signal a more timely technical breakout opportunity and a good entry point.
The Upside: Trend analysis - and technical analysis, in general - does not evaluate stocks for intrinsic value and develops no opinion about a company's fundamentals. It attempts only to find evidence in the pattern of trading of a company's stock that supports a particular market trend. It makes assumptions about repeating patterns and the evolution of a trend. It also looks at share price markers that are key to anticipating where resistance stands. CCL's stock faces immediate price resistance at its current level, but could fight its way back to being a plus-$30 stock again with a strong move this week. Although trading volume is slightly improved in its recent advance, technical traders would look for more activity. Nevertheless, this trade's best feature could be its hedge against a broad market downturn and commodity deflation.
The Downside: High energy and materials costs drag on this stock like many others. Currency volatility adds to the challenges for international operations. There is a reason the stock was Stock Trends Bearish for so long. Entry at this point risks that resistance at the current level is too much and sets the stock back on its November gains. Support at the long term trend line ($22.50) guides an exit if things go badly in the short term.
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to Stocktrends.ca
Skot Kortje