This week, we get back to earnings and, sadly, the pickings are slim.
Given these turbulent times, we have two Consumer Staples stocks to examine — Lamb Weston (LW) and Conagra (CAG). They may not be the most exciting charts, but they show clear levels of interest that are worth noting.
There’s also the highly volatile stock Restoration Hardware (RH), which is trading close to a support level. This stock can be considered a high-risk, high-reward trade.
Let’s dive in…
Lamb Weston (LW)
Lamb Weston, best known for its iconic french fries, has gone on one of the wildest rides over the last four years. After a two-year uptrend, the stock has slowly and steadily gone on a two-year downtrend, giving back all its gains.
Earnings have been quite harsh over the last four quarters. There was one gain of 2.6%, with three losses that included a -19.4%, a -28.2%, and most recently a -20.1% decline. Shares now sit 54% off of all-time highs as the company heads into Thursday’s earnings report.
Technically, there is some hope.
Shares made a full roundabout from trough to peak and back to trough again, where they were able to find some major support. The $47.50/$48 level was the original double bottom that started the rally years ago, and now, when re-tested, it held again.
The risk/reward set-up appears to favor the bulls, barring another epic post-earnings drawdown. If shares sell off, the $47.50 level should get tested and could be a good entry point. However, the path to least resistance looks higher from this level. A mean reversion back to its long-term downtrend around the declining 200-day simple moving average would be good for a 23% gain.
Overall shares continue to act rather soggy, but one little quarter could spice things up and lead to a quick and satisfying return.
Restoration Hardware (RH)
Restoration Hardware has become one of the most volatile stocks after earnings over the last year-and-a-half and is one to watch with the report on Wednesday afternoon. Shares have moved an average of +/- 17% over the last six reports with gains of 17% and 25.5% over the last two.
Since last December’s 17% jump after results, the stock has declined as much as 50% from its recent highs. One major factor is the slowdown in the housing market, influenced by rising interest rates, which has dampened demand for home furnishings.
Technically, shares reached a major support level going back four years and held. It was the fourth time in four years that shares moved towards that $210 level and held. Clearly, we have a major level of interest to watch from a risk/reward set-up.
Shares hit extreme oversold levels in its relative strength index (RSI) in early March and have finally bounced. The rally back from oversold levels and a hold of key support should favor the bulls for now.
If you were to trade this into Wednesday afternoon’s earnings, you must watch that support level carefully. It has held time and again, and this would be a great area to dip into the stock with a stop-loss for protection just below support to minimize losses. Any positive reaction could see a fast snapback rally towards the 200-day moving average, which sits 35% above current levels. A simple mean reversion could equate to a nice return, while the stock remains in its longer-term downtrend.
ConAgra (CAG)
ConAgra, the parent company of Duncan Hines, Birds Eye, and Slim Jim, has struggled after earnings, as it has fallen five of the last six times it has reported.
Technically, shares sit in the middle of a range between its 50-day and 200-day moving averages. The consumer staple has held up relatively well compared to the overall market and has only declined -4.5% year-to-date. It pays a 5.3% dividend and is considered a safer haven in these turbulent times.
The $24.50/$25 level has acted as solid support and could be a good entry point given current market uncertainty. However, the upside has overhead resistance at the 200-day moving average and the $27.50/$28 level.
Overall, this may be a nice place to hide out during turbulent times, but the overall risk/reward is marginal, at best. It may be more rewarding to eat their products than to trade the stock.
