Bad Catsup

Because stocks don’t always go up, at some point this market will reverse course. For that to occur, you will see a majority of stocks in that market to eventually rollover and start their decline. Tops are a process and typically take a long time to form allowing attentive investors ample time to sidestep at least some of the fall. Please don’t misinterpret this post as me calling a top as that is not what is happening. Rather I am trying to illustrate for those interested as to what that stocks typically “look” like when their bull run is ending and head south.

The chart of Kraft/Heinz, KHC is forming that “look”.  With price having broken down out of a rising wedge and below its 200 day moving average it currently sits right on major support (S1).  Because the stock is currently in an uptrend, it should be given the benefit of the doubt and be viewed as a pullback buying opportunity rather than an imminent decline is near. But, all bets are off If S1 does not hold and price moves below that level. Doing so will have then created an intermediate term trend reversal by constructing lower highs and lower lows and forming that “look” I was referring to at the end of the first paragraph. A break below S1 indicates the next level of support and projects a price area around S2, approximately $65. Looking left at S2, because we see a potentially massive supply of shares if price were to eventually get there, it would likely take weeks and/or months of consolidation before it shows its hand and discloses the direction of its next move.   

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As important as share supply was an issue at S2, it is equally important if sellers remain in control and pushed beyond that.  The fact there is little supply from $45 to $62.5 tells me to expect a quick flush down to S3 if there is a confirmed break of S2.

If I believe the likely probability is for KHC to find support at S1 and to move higher, you might be asking why go through all the analysis and what-ifs. Investing is about dealing with probabilities not certainties as there are none. As such, being prepared with an action plan regardless of the outcome is 90% of the investment battle and the only way to minimize collateral account damage when the markets decide to prove your likely probability wrong.