Conagra Foods, Butterflies and the Bollinger Band Squeeze

July 28, 2014 12:52 PM

Conagra Foods, $CAG, has had a rough year.  Who would have though a food stock with 3.5% dividend yield could gyrate so much.  But it dropped nearly 20% from January to the end of February.  The recovery thorough mid June took back about 78.6% (a key Fibonacci level) of that move, before it fell again.  All this price action makes a market technician get excited.  These retracements are working through what is known as a Butterfly harmonic pattern.  It is a bearish pattern but calls for the possible reversal once the stock hits point D on the chart below at 35.80.  That is a long way higher.  Without looking at the potential for that harmonic to complete, you might be focusing on the consolidation in the bullish flag between 30.50 and 31.25.  A break of this flag higher would target a move to 33.50.  You might also notice that the Bollinger bands have squeezed, suggesting that a move may be very soon.  The momentum indicators, RSI and MACD favor the upside.  The MACD is is moving higher and the RSI is tapping on the bullish range.

There could be a trade on a break higher just from buying the stock.  Another way to look at it would be to consider the August 31 Calls (offered at 45 cents as I write) for a defined risk trade.  Using the September 31 Calls (85 cent) gives it more time.  There are many other ways to participate in the upside with options.  Take a look.

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