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Archer Daniels Midland(ADM-N)
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RSI Divergence - A Bottom Picker’s Secret Weapon

Barchart - Tue Mar 28, 2023

Finding the right entry point in any investor's watchlist is arguably the most daunting task for investors. Many would say you can’t time the market; some would say it is easy with the right tools. In more cases than not, timing the market is near impossible. That said, investors have tools to help navigate the market and spot potential opportunities. One of these is the use of RSI (Relative Strength Index) and the insight provided by seeing a divergence in both price and RSI.

RSI Divergence is one of the unique ways that provides a signal to “look” at any trading instrument that has the potential to reverse its current course. An RSI divergence occurs when the price moves in the opposite direction of the RSI. 

For example, a bullish divergence happens when the RSI displays an oversold reading and then a higher low, but the instrument still trades lower. This tells investors that the momentum downward is waning and a change in direction may be imminent.

Archer-Daniels-Midland Company (ADM)

Archer Daniels Midland Company is a global food processing and commodities trading organization. It was founded in 1902 by George A. Archer and John W. Daniels. The company's name came after buying the Midland Linseed Products Company. Today, the company is headquartered in Chicago, Illinois.

ADM has 62 innovation centers, 327 processing plants, and 520 procurement centers across six continents. In 2021, the company had roughly 41,000 active employees.

The company is mainly divided into three segments:

  • Ag Services and Oilseeds segment: includes the production, marketing, crushing, and extra processing of oilseed crops, such as soybeans and soft seeds, into vegetable oils and protein meals.
  • Carbohydrate Solutions segment: also known as the Corn Processing segment, makes sweeteners and starches out of corn.
  • Nutrition segment: provides proteins, dietary fiber, organic nutritional and health products, including probiotics, prebiotics, enzymes, and herbal extracts, as well as specialized foods like edible beans, formula feeds, and health and nutrition commodities for animals.

The company also has two minor segments:

  • Agricultural Services segment: provides storage, cleaning, and transportation services for agricultural products.
  • ADM Investor Services, Inc.: provides institutional and individual clients with brokerage services.

Archer Daniels Midland has an annual dividend yield of 2.35% and a 5-year dividend growth rate of 25% and is expected to announce its next dividend in the first week of May based on its historical announcements. ADM has continued to increase its dividends for 51 years and is part of the elite dividend kings list. 

Analyst Recommendations

Analysts rate Archer Daniels Midland as a "Moderate Buy" with 5 Strong Buys and 6 Holds from Analysts. ADM’s mean Target price is $101.00, with a high estimate of $117.00 (an upside of 50.48%).

Should you pick this up?

ADM’s stock has dropped significantly from its previous run around the $97.00 area. Prices are on their way to their immediate support at $69.97, while it has been registering oversold signals with lower highs since early March. This mini shows investors that momentum to the downside is waning, and we may see a short-term bottom. Investors should wait for clear signs of a change in trend or reversal signal before entering to ensure a low-risk entry.

Emerson Electric Company (EMR)

John Wesley Emerson established the multinational corporation Emerson Electric Company in 1890, intending to produce electric motors under the terms of a patent held by the Scottish-born brothers Charles and Alexander Meston. Today, the company is headquartered in St. Louis, Missouri, the United States, and has over 85,500 employees. 

The company provides various services through its main two segments:

  • Automation Solutions: aid manufacturers in reducing waste, energy use, and other costs throughout their processes with the help of automated machinery and tasks.
  • Commercial and Residential Solutions: create products that enhance production efficiency while preserving food quality and safety. 

The product list includes professional equipment, cold chain monitoring, heating, ventilation, air conditioning, refrigeration (HVACR), and food waste management. They are also branching into new fields like smart home technology, sustainable food production, and air quality. 

Emerson Electronic Company has an annual dividend yield of 2.51% and a 5-year dividend growth rate of 7.29% and is expected to announce its next dividend in the first week of May based on its historical announcements. EMR has continued to increase its dividends for 66 years and is part of the elite dividend kings list.

Analyst Recommendations

Analysts rate Emerson Electronic Company as a "Moderate Buy" with 6 Strong Buys, 2 Moderate Buy, and 7 Holds from Analysts. EMR's mean Target price is $101.00 with a high estimate of $120.00 (an upside of 45.03%).

Should you pick this up?

EMR just bounced from immediate support and is registering a clear divergence after its initial drop into the oversold area last February. Investors should watch for potential signals to buy EMR as we may step into a period of consolidation before changing into a bullish trend based on the price inside the immediate support and its moving averages.

Black Hills Corp (BKH)

Black Hills Corp. is a publicly traded electric and gas utility company headquartered in Rapid City, South Dakota. J. B. French started the firm in 1941. Today, the company operates in eight states: Arkansas, Colorado, Iowa, Montana, Nebraska, South Dakota, Wyoming, and Texas. It serves a population of approximately 1.3 million people. The four business segments of this company are:

  • Electric utilities
  • Gas utilities for heating and cooling
  • Power generation 
  • Mining.

The company's 1.3 million customers divide into 1,083,000 natural gas and 216,000 electric users across different states.

Black Hills Corporation has an annual dividend yield of 4.1% and a 5-year dividend growth rate of 33.15% and is expected to announce its next dividend in the last week of April based on its historical announcements. BKH has continued to increase its dividends for 52 years and is part of the elite dividend kings list.

Analyst Recommendations

Analysts rate Black Hills Corp as a "Moderate Sell" with 2 Holds, 1 Moderate Sell, and 1 Strong from Analysts. BKH's mean Target price is $64.00 with a high estimate of $68.00 (an upside of 10.88%).

Should you pick this up?

BKH has recently tested support and showed buyers stepping in last Friday. RSI shows us a continuous divergence in price and momentum which signals a potential change in direction. Investors should keep tabs and wait for a confirmed buy signal before buying BKH as a potential bottom-picking trade.

Final Thoughts

Investors should never forget that RSI divergences only tell you to “look” and is not a sign to buy or to sell a position. Investors should always analyze the signals provided by trading indicators within the context of price action and the state of the market. Consider looking at buying signals that would complement the strategy that offers low-risk and high-reward entries and include proper due diligence better to assess the company’s health and long-term prospects.


 



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On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.