Aug 27, 2010 10:04 AM PDT
Whole Foods Market, Inc. (WFMI) has become quite familiar with problems that could send the stock lower in a hurry, which is why it's odd that shares have managed to hold up as well as they have following the August 5th leap to a high of $30.13 on news of a surprising improvement in is third quarter income.
Of course, Whole Foods Market shares haven't even been able to try and get back to that level since. Instead, a controversial, pseudo-political statement from CEO John Mackay has generated requests for his termination. At best it was misguided, and at worst it led to boycotts of the store. Oh, it may have also deflated the best shot WFMI had at continuing to rally.
With today's 3% tumble, shares of Whole Foods Market, Inc. appear to be aiming for the gap at $24.87, though it's more complicated than that.
The company is now plagued by high expectations following their kick-butt results last quarter. Moreover, the stock itself has just brushed a major long-term resistance line. That's simply more weight than most stocks can bear at this point, making WFMI a better-than-average breakdown candidate.
The ridiculous rally from the homebuilder stocks had to end sometime, and Pulte Homes Inc. (PHM) looks like it's going to be one of the first victims of that reality.
Yes, real estate prices are improving, and yes, that fosters demand for new construction. This isn't 2006 though. In fact, we may never see a 2006 again in terms of construction demand. Yet, investors were buying PHM as if it were 2006.
The tip-off that PHM was in trouble isn't difficult to spot; the rally slowed in August, and turned south over the last three days. We think Pulte Homes has a lot more ground to give before it's all said and done though. A move back to $8.00 wouldn't be unreasonable.
To the company's credit, pending home sales reached two-year highs last month. That's great for Pulte, but may have already been baked into PHM share price.
-------------------------------------------
Sign-up for Free to Receive Future Commentary and
Trading Alerts for WSM, RF, WFMI, and PHM.
-------------------------------------------
The recent chart of Williams-Sonoma Inc. (WSM) illustrates a variety of important candlestick charting clues; let's go through them one at a time to explain why WSM is likely to make a significant pullback in the near future. The gap from late August is a concern, but it's not even the biggest concern for Williams-Sonoma shares. The key hint that the peak close of $19.18 on the 28th was the end of the line stems from the fact that buying volume - or accumulation - had already started to subside by that point for WSM.
Two days later (September 1st) we saw a major bearish 'outside day' from WSM, where that day's range completely engulfed the prior day's range, while simultaneously making a decisive move lower. The fact that volume was stronger on that day than the day before is just a little grave working against Williams-Sonoma.
Bottom line - WSM appears to be well overextended in addition to being well overvalued. The forward-looking P/E is a hefty 34.8, which isn't something the market seems to be excited about any longer.
And finally, Regions Financial Corp. (RF) isn't the only regional bank that's in trouble, but it looks like it's the most opportune of the bunch.The signal here isn't just today's loss though - lots of stocks can take a loss and come back fighting the next day. The loss from Regions Financial is a big deal simply because it is so big, and so decisive. Add in that we saw the same kind of devastation for RF yesterday as well, and all the market sees right now is a radioactive stock...something nobody want to touch.
Is it deserved? That's not really the point, but no, Regions Financial Corp. is mostly being dumped because the vast majority of regional banks are selling off pretty sharply too. And, perhaps a suspicious reassignment of the bank's chief credit officer raised a red flag as well. Neither makes RF a particular liability though.
On the other hand, the bank wasn't going to turn a profit this year or next year either, so one could equally argue that the recent, errant runup from Regions Financial shares is simply being corrected. Whatever the reason, RF is breaking down.
We'll not set a target for RF, but we will mention there's no meaningful support level until you get back to the mid-$3's.
If you'd like to know when or if we issue trading alerts specifically for PHM, WSM, RF, or WFMI, then be sure to subscribe to our free e-newsletter. It's delivered two to three times per week.
