ConAgra Foods Inc (NYSE:CAG) enjoyed a rally last Friday that added to an already nice run in the packaged foods company since late April. CAG stock has seen an accelerated upward trend ever since the company’s latest earnings report on March 26, which was reinforced by new highs in the S&P 500, better price action in the consumer staples sector (to which CAG stock belongs) and news of an acquisition.
The longer-term picture for CAG stock looks particularly bullish; active investors and traders should look to begin building a position.
When ConAgra reported its fiscal third-quarter results on March 26, it announced better-than-expected results and raised its earnings expectations for full-year 2015 from $2.15 per share to $2.19. Then last week, ConAgra purchased Blake’s All Natural Foods in an effort to make bigger gains into the healthier choices foods.
Looking at the consumer staples sector — as represented by the Consumer Staples Select Sect. SPDR (ETF) (NYSEARCA:XLP) — we see that the sector has been consolidating since January and building a wedge-like formation since late 2014. Ultimately this wedge will resolve in one direction or another, but last Friday the sector marginally broke to the upside.
That’s no big win just yet, nor is it a guarantee that CAG stock will hold up, but still, it’s nice to see that the sector as a whole is standing tall. In fact, last week it even showed relative strength vs. the broader market.
CAG Stock Charts
As we look for some long-term perspective, the below chart looking back to the late 1990s shows us that last week’s rally pushed CAG stock past its previous all-time highs from 1997. The three red dotted horizontal lines represent the two big-picture trading ranges that ConAgra has traded in during this time period.
We can see that after breaking out of the lower range to the upside in late 2012, CAG stock then rallied toward its 1997 highs; however, before starting the next rally, ConAgra first dropped back to the upper end of the lower price range again (middle red dotted line). This is constructive technical behavior and supports the longer-term odds of this stock ultimately breaking much higher.
Finally, on the daily chart we see further constructive price action by CAG stock. Note that in February/March, shares built a higher low and bounced off their rising 200-day simple moving average (red line). After pushing to new multiyear highs by early April, CAG settled into a next consolidation phase, which held support at its 100-day simple moving average (blue line).
Last week’s rally visibly broke the stock higher, and shares could target the $40 area in the near-term. However, while the near-term charts are constructive, my take for CAG stock is longer-term in nature. The aforementioned charts support a move into the mid-$40s through a nine- to 12-month time frame.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
