This Battered Stock Is Trying to Revive

The consumer staples sector spent most of 2023 collapsing. And it underperformed during the market rally off last October’s lows.

If you invested in consumer staples 12 months ago, you’d be sitting on a paltry 1% gain compared with a 23% rise in the S&P 500.

This lackluster performance came as consumers turned away from packaged foods following a pandemic-induced surge in demand.

On top of that, the sector had to contend with the popularization of weight loss drugs that curb consumers’ appetites.

To make up for the dip in the volume of products sold, consumer staples companies have raised prices by over 10% on average throughout the past year. That allowed those companies to maintain solid sales growth.

But now their pricing power is peaking. The costs of ingredients like corn and wheat have steadily dropped, giving the companies less cover to raise prices.

Yet even as the sector’s headwinds persist, some big names have shown sparks of life.

Today, let’s look at one of those big names, General Mills (GIS). Certain signs suggest the stock may have further room to run…

The Beginnings of a Reversal?

In the chart below, you can see that GIS suffered a brutal fall following its peak in May (‘A’).

GIS tumbled over five months before consolidating for an additional five months.

It wasn’t until mid-March that the stock began to show signs of life by breaking out of its consolidation.

Then, on April 9, GIS suffered a sharp drop back down to its 50-day Moving Average (blue line). That followed the March consumer price index (CPI) reading, which showed that food prices were beginning to grow slower than inflation overall.

But since then, GIS has rallied back to near-term highs. As a result, two bullish signals emerged:

1. The stock has broken above a near-term resistance level (purple line) that formed at the beginning of April.

2. The blue MACD line crossed above the orange Signal Line. Both are above the zero (0.0) line, which shows short-term momentum.

With the combination of these two signals, GIS’s stock could clearly continue to trend higher.

But this week muddied the waters…

On April 22, GIS peaked at $71.17 before going nowhere in the following two trading days.

That peak represented a higher high for the stock. Yet a different message was emerging in the Relative Strength Index (RSI).

Take another look:

While GIS shares made higher near-term highs, the RSI made lower highs from its end-of-March levels. This is a bearish signal.

Momentum is slowing, and a reversal may be imminent.

So given the emergence of this bearish signal, what should we watch for next?

All Eyes on Resistance

The most immediate thing I’ll watch is if GIS shares drop toward the support line I highlighted above. Since GIS broke through that line, it now represents a resistance point for its shares.

Should GIS fail to bounce off that resistance line, then the bullish signals highlighted above will be a false breakout.

In that scenario, we could see GIS continue to fall back to its 50-day Moving Average.

Alternatively, if GIS shares bounce off that resistance line and rise alongside a higher high on the RSI, it will signal that GIS shares are in a clear uptrend.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict