K is one of the few elite blue-chip companies that has been able to maintain itself in a weekly up-trend in spite of the collapse of the stock market. In addition, the stock is in an industry (consumer staples) that most analysts predict will hold value during this economic debacle.
K has not yet broken any previous weekly closes of consequence and has been able to maintain itself above the 200-week MA as well. In addition, the stock has re-tested successfully the low made two weeks ago and is in the process of generating a second successful re-test of that level, if the stock is able to close in the green on Monday.
On a weekly closing basis, support is very strong between 47.26 and 47.59 from two previous major weekly low closes. Support is also strong at 48.49 from the most recent low weekly close as well as from the 200-week MA. On a daily closing basis, support is very strong at 48.31, again at 47.89, and major at 47.50. On an intra-day basis, support is major at 45.25 and very strong between 46.25 and 46.68. On a weekly closing basis, resistance is decent at 50.50 and then again a bit stronger at 52.00. Major resistance up at 54.22. On a daily closing basis, there is very minor resistance at 49.90 from a previous high close as well as from the psychological level at $50. Above that, there is decent resistance at 50.85 and then quite strong at 52.27.
It is evident that the daily and weekly closing support between 47.50 and 48.00 will be very difficult to break without a major collapse in the indexes. In addition, K is still in a weekly up-trend that may or may not be coming to an end, but nonetheless, it is highly unlikely that after the indexes have already broken down so dramatically that this stock would now get into a downtrend. The probabilities favor a sideways phase with a possible trading range between $46 and $52 for the next few weeks and/or months.
It is likely that this coming week K will be generating a drop below last week's low of 47.25 as a re-test of the intra-day low seen 2 weeks ago at 45.25. Drops down to the mid-to-high 46's this week, seem possible and perhaps even probable.
Purchases of K between 46.70 and 47.00 and using a stop loss at 45.15 and having an objective of 52.77 will offer a risk/reward ratio of almost 4-1.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
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I stepped up an purchased K today at 47.50 as the drop down to 47.24 was sufficient to fulfill the chart picture.
I don't expect the stock to do much today and tomorrow, but this week is the end of the month and the indexes will likely rally toward the latter part of the week as window dressing usually occurs at the end of the month.
As it is, the indexes attempted last week and even this morning to go down to the previous lows and break them. They have not been successful and the panic selling and forced hedge fund liquidations are just about over. With no new lows in the indexes, I do believe the market will start a correction phase upward this week..........probably lasting from 2-3 weeks. Minimum objective on the upside in the DOW would be 9057, with an outside possibility of generating a rally up to 10263.
K is likely to be one of the better supported stocks during this phase.