Chart Of The Day: Will Kellogg's 3-Way Split Save the Stock?
Investing.com | Jun 22, 2022 09:32AM ET
Kellogg (NYSE:K) made a surprising announcement. It plans to break the business into three distinct independent companies—plant-based, cereal, and snacks—to allow each part of the business to focus on growth.
This dramatic move will extend its long-term strategy of focusing on snacks. As people increasingly eat between meals, the company bought Pringles a decade ago for $2.7 billion. Conversely, Kellogg's regular business, cereal, has stagnated as the culture turns to consumers eating on the go. It did receive a temporary boost during the coronavirus pandemic when consumers were forced to stay at home.
Will this break-up strategy help boost the stock? Well, that depends. Let's look at the chart.
The announcement increased the stock's price by 2%. While that sounds like positive price action, it's not so simple. The session's bullishness was deflated, as the stock initially surged 5%, but bears executed a counter-attack, demonstrating resistance at the May 26 high.
If the price falls below $66, it will have completed an H&S top.
Now, let's get a broader scope, and see if we can understand the context of the moves on the chart.
We now realize the significance of the daily H&S, as the price found resistance at the top of a weekly triangle, whose stop begins in 2018.
Here, we see both the Moving Average Convergence Divergence—comparing price averages of different periods—and the Rate of Change—comparing momentum—have triggered sell signals. The ROC fell below 0.
If the Daily H&S is complete, the price will retest the bottom of the weekly triangle.
h2 Trading Strategies/h2Conservative traders should wait for the price to fall through the neckline and employ a 3% and a three-day (preferably with a weekend) filter to avoid a bear trap. Then, they should wait for a Return Move to retest the pattern's integrity before committing to a short position.
Moderate traders would wait for a 2%, two-day penetration and a corrective rally for a better entry, if not for confirmation.
Get The News You Want
Aggressive traders could be short now on the resistance by the pattern's shoulders and weekly triangle top. Money management is key. Here is a generic example:
Trade Sample - Aggressive Long Position
- Entry: $71
- Stop-Loss: $72
- Risk: $1
- Target:$61
- Reward: $10
- Risk-Reward Ratio: 1:10
Author's Note: This is a generic sample. The better the strategy incorporates your timing, budget, and temperament, the more successful your overall trading will be. For example, the price may not climb to $71. Some traders may prefer to short at $72 for more opportunities overall, while others prefer to trade less and only when exceptional opportunities arise. You will learn your preferences with experience. Till then, you may use our samples for educational purposes. If you focus on profit, you may end up with neither. Happy trading!
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.