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Whole Foods Market a case of buy high, sell higher

Hi Lou,

As a first time investor, I'm wondering what your thoughts are on Whole Foods Market and when you think it might be a good time to buy?

Thanks a lot in advance!

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Hey Mariana,

Congratulations on your decision to take income from your current spending cycle and investing the savings for your future needs. I always advise my students at Sheridan College and listeners to Talk Radio AM640 that unless you were born with a honking big trust fund you will need to get a grip on your spending if want to replace your labour income with investment income at some point in your future. If you are already the beneficiary of a trust fund you can tell if it is big enough if your full time job is walking to the mailbox to collect your dividend cheques. If not, then you should also embrace the values of thrift and prudent investing.

Whole Foods Market Inc. is the premier retailer of natural and organic food products in the United States, Canada, and the United Kingdom. I have shopped at their stores and have to say that their products are excellent and that they charge like a wounded bear for every item in the store. They come by the nickname " Whole Paycheque" honestly. The focus on natural and organic products has helped the company to attract the high end consumer from traditional grocery retailers and maintain high margins and increasing profits. WFM has beaten Street earnings expectation in eight of the last eight quarters, which always helps drive value into a stock.

A review of the charts will provide some guidance as to the trend, support, and resistance that WFM is faced with at this time.

The three-year chart is a text book example of a stock that has been very generous to investors that caught the ride in 2009 when the shares were trading near $25.00. There are a number of features worth noting on the chart. First is a sustained uptrend line with support along the 200-day moving average. The selling that came in June of 2012 was signalled by the MACD and the RSI which both indicated a shift ahead of the release of third quarter results in July. At the time the Street had concerns about the stock meeting the forecast for the third quarter, which had investors hitting the sell button. There is also resistance that has formed at $94.00 that you should be aware of.

The six-month chart provides a close up of the resistance at $94.00 and the support at $82.00 where the shares caught a bounce just before the release of Q3 earnings. At this point the RSI and the MACD appear to be turning lower suggesting that the stock will be pulling back to test support along the 50-day moving average. The next flex point for WFM will be the release of fourth-quarter results in late October or early November.

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WFM is a case of buy high, sell higher. You should start picking away at the shares and building a position at various price points. If it breaks above $96.00 it has room to set a new high. Keep in mind that WFM is a growth story which means that they have to beat earnings and sales forecasts every quarter in order to justify their high price earnings multiple. A miss, or fear of a miss, and the stock will sell off aggressively.

Make it a profitable day and happy capitalism!

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