Trading Stocks – Cal-Maine Foods Breakout Signal

CALM has been in a strong uptrend and appears ready to go higher.

Courtesy of FreeStockCharts.com – CALM has been in a strong uptrend and appears ready to go higher.

Take a trip to any grocery store and its hard not to wince at the high cost of food. For the working class who actually go to the store themselves, they feel the pinch of growing food costs which doesn’t look as if its going to end any time soon. The way to make this play on inflation is by trading stocks in companies that are benefiting from it, find the strongest stocks in that industry, and then look to ride the momentum higher. One stock has experienced a 115% rise in annual earnings as well as over a 900% quarter-to-quarter rise combined with a incredibly strong price trend that should gain any trader’s attention.

Cal-Maine Foods, Inc. (CALM) produces, grades, packages, markets, and distributes shell eggs. The company sells its products to various customers, including national and regional grocery store chains, club stores, foodservice distributors, and egg product consumers primarily in the southern and mid-western and mid-Atlantic regions of the United States.

With a market cap of just over 2 billion dollars, CALM is a small-cap company that has an entrenched position in its market with a wide distribution network. Its weekly chart reflects a solid long-term bullish trend in place that has made a steady series of higher highs and higher lows since bottoming out in March of 2009.

Peaking at just over $60 in December of 2013, CALM declined in price going into the new year when at the beginning of 2014 it began to trade higher. Its 50-day and 200-day SMA’s began to slope upward as the stock went on to make a series of all-time price highs. CALM has achieved a balanced symmetry between its price action and these two key institutional indicators which indicate that the trend is stable. This is important because price stability means that the trend is strong and not based on the market’s over-exuberance which can lead to volatility and a price crash.

On 7-28-14, CALM set a new high just under $82 before pulling back and finding support at the 50-day SMA. From this point, CALM resumed the trend and offered and Inside Bar entry on 8-4-14 just over the high of that price bar at $71.27. However, if you missed that entry, CALM has gone on to offer a second entry point which may indicate something greater to the technician that just an entry point – a massive bullish signal.

CALM Breakout

Courtesy of Freestockcharts.com – Calm offered an entry on an inside bar during a pullback on 8-4-14. Recently, the stock broke out above resistance with a price lap that signaled a long entry.

 

On 9-2-14, price traded up to its former all-time high of $81.91 which was set on 7-28-14. Price didn’t break above this price level with any conviction but it did trade over the next several days near this high. This tightening of price action near this price level was indicative of a stock that is ready to breakout, which it did on 9-12-14, this past Friday.

For trading stocks, Friday’s price bar possessed a number of important keys to a successful breakout move and entry point. First, it opened and closed within 10% of its total daily range. This shows that the bulls showed in force to force price to break through the $82 price resistance point. Second, when it opened for trading that day it exploded into a price lap where its opening price and intraday price low was outside the range of the previous day’s trading range. Third, volume was almost double the stock’s 50-day average volume level showing that the breakout had “legs” to go higher and the volume to fuel its bullish run. Finally, the stock is now trading at a new all-time price high of $85 with no overhead resistance to slow its rally.

At this point, you should wait for the stock to pull back in price and go long if the stock sets up accordingly. Use a 7% stop loss with no more than 2% risk of your total capital.

Billy Williams
 

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