U.S. stocks might be back on track. After choppy trading since Thanksgiving, two of the three major broad market indices reached new all-time closing highs on Thursday. The Dow Jones Industrial Average sits just a tenth of a percentage point shy.
The catalyst was an apparent, if uncertain, truce in the U.S.-China trade war. And if that roadblock is cleared, there may be more upside ahead for equities. The Federal Reserve seems to have a constructive posture. The U.S. economy has slowed, but unemployment remains at record lows and consumer confidence is intact. It looks like smooth sailing heading into 2020.
Friday’s three big stock charts, however, focus on stocks for which the outlook is a bit more complicated. All three stocks trade at key levels, either hoping for support to hold or for resistance to give. Those hopes could be boosted if the market-wide rally continues as expected.
J.M. Smucker (SJM)
Source: Provided by Finviz
The first of Friday’s big stock charts, J.M. Smucker (NYSE:SJM), isn’t difficult to decipher. The key question is whether support will hold:
Click to Enlarge Source: Provided by Finviz Technically, there’s reason to argue that it will. $102 has held repeatedly, and looking to the weekly chart, similar levels served as resistance earlier this year. SJM consolidated at that point and began its rally to May highs.
Fundamentally, the case is intriguing as well. I made the case for SJM stock last year, and while that case hasn’t played out, the broad outline still holds. Smucker’s pivot into pet food and coffee mimics a similar and well-received effort at General Mills (NYSE:GIS). Other names in the sector have rallied, with stocks like Procter & Gamble (NYSE:PG) and McCormick (NYSE:MKC,NYSE:MKC.V) breaking out. Yet SJM stock trades at less than 13x forward earnings.
That said, those stocks are driving solid earnings growth. J.M. Smucker isn’t. FY21 consensus earnings per share estimates are modestly below fiscal 2019 levels. Full-year guidance for FY20 was cut after the fiscal second quarter report last month. There are reasons why investor patience appears to have run out.
From a near-term standpoint, it might be other companies that determine whether support holds. Both General Mills and Conagra Brands (NYSE:CAG) release earnings next week. Strong reports from those peers could drive optimism toward the sector and lead investors to take a longer look at one of the group’s laggards. Weakness, however, could resurrect industry worries — and lead SJM to bust through support.
Ralph Lauren (RL)
Source: Provided by Finviz
For Ralph Lauren (NYSE:RL), the second of Friday’s big stock charts, the situation is reversed. RL stock is trying to bust through resistance, and here too there’s reason for optimism:
Thursday’s 3.7% gain puts RL in position for a breakout. An uptrend has held since August lows, and on decent volume. With the Relative Strength Index at 65, shy of overbought territory at 70, there’s probably still some potential momentum behind the stock. If RL can break through resistance, there should be a path toward $122 and then early-year highs at $130.
The rise in Ralph Lauren stock on Thursday, meanwhile, makes some sense. RL stock spiked 15% after fiscal second quarter earnings in early November handily beat Wall Street estimates. The key catalyst was strength on the Chinese mainland, where revenue increased 22% on a constant-currency basis. Good news on the trade front should help Ralph Lauren — yet Ralph Lauren stock trades roughly where it did after the post-earnings spike.
There are risks here on both fronts, however. Resistance has been firm going back to May. Apparel has been a brutally difficult sector. Revenue is guided to rise roughly 2% in constant currency this year; while performance on the Chinese mainland has been strong, protests in Hong Kong have hit sales in that market. At less than 14x forward earnings, RL stock is cheap, but for years now ‘cheap’ hasn’t been enough for apparel stocks, and there’s the chance that will be true for Ralph Lauren stock at these levels.
UDR, Inc. (UDR)
Source: Provided by Finviz
Apartment operator UDR, Inc. (NYSE:UDR) already has breached support. The third of our big stock charts suggests the declines could continue, though there are some fundamental reasons for optimism:
The fall through support is concerning from a near-term perspective. $47 is an obviously key level that held steadily as resistance this summer, and when UDR finally broke through it posted a nice breakout by REIT (real estate investment trust) standards. But the stock clearly has reversed, falling through not just $47 but all three moving averages.
Thursday’s trade news doesn’t appear to be much help, either. Treasury yields moved higher on the news, limiting the relative attractiveness of UDR’s current 2.95% dividend yield. The sell-off continued the weakness in UDR, which has occurred along with declines in other REITs. Widely held names like Realty Income (NYSE:O), Public Storage (NYSE:PSA), and Essex Property Trust (NYSE:ESS) too have pulled back. It does seem like at some point the declines will cease, though UDR’s chart suggests the reversal might not be imminent.
That said, there are some reasons for optimism. Apartment demand is expected to rise over time. A 3% dividend yield may bring in buyers. The current descending narrowing wedge often portends a bullish reversal, and if UDR can claw back into the range it might yet see a bounce. Right now, however, UDR is looking for buyers.
As of this writing, Vince Martin has no positions in any securities mentioned.
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