The Stock: Metro Inc.
Yesterday's closing price: $39.70
Trend: Canadian grocery names now stand tall among the best performing TSX blue-chip stocks. While the Toronto market has suffered with the retreat of commodity stocks, food retailers have sliced through the market headwind.
The 6-per-cent, three-month advance of the S&P/TSX Consumer Staples index, which is predominantly represented by food stores, ranks only behind the performance of the information technology, real estate and utilities sectors. Looking forward over the next quarter investors should not dismiss the current relative strength of grocery stocks - including previously profiled Empire Co. Ltd. and Loblaw Cos., a current Stock Trends Bullish Crossover stock. With the deflating materials and energy sectors currently weighing on many investment portfolios, a rotation toward performing sectors will help keep these food stocks in bullish trends.
The Trade: After hitting fresh 52-week highs in each of the past couple of weeks, shares of Metro Inc. have started to deliver on the promise of a Stock Trends Bullish trend that emerged at the top of the year.
The stock broke out of its previous bear trend in early November, rallying from a low of $33 to its current share price near $40. There may be some technical concern that the share price will peak at near this level - a high in previous bull trends. However, consumer staple sector strength amid a period of stumbling resource stocks makes Metro shares a solid holding in a volatile market.
Robust first-quarter Metro earnings helped trigger a 24-per-cent increase in the stock's dividend, a positive signal that the share price valuation can be stretched. Also reassuring is the record of longevity Metro's bull trends have exhibited in the past: Since 1995, the average length of its Stock Trends Bullish trend is about 14 months. The stock's current bull trend category is now only five weeks in the making. Investors are not too late to buy.
The Upside: The manner in which a stock price advances is always of interest to technical traders. If the trading pattern reveals that a stock's closing price is generally closer to the period high than the period low (Stock Trends analyzes weekly trading), if there are gaps in the trading price from one period to the next, if the trading range narrows or widens - these are price characteristics that draw scrutiny from technical traders. Although none of these price patterns apply to Metro's stock currently, its share price has logged in three consecutive weeks of higher highs and higher lows - another supporting signal of price strength that suggests that the stock will continue to advance to new highs in the near term. However, the relatively early stage of Metro's bullish trend promises a good trade in 2010.
The Downside: In the context of a retreating broad market this stock has an implicit risk of a pullback, too. Support from the intermediate trend line - the 13-week moving average - stands at $38. It is also the share price high of the November breakout, and represents an area of potential supply of shareholders that might be inclined to bail on the trade if the price drops below. If the stock turns Stock Trends Weak Bullish - now triggered if the share price is below $37 - an early exit is advised.
Skot Kortje