Whole Foods Is Getting Pounded

Whole Foods (WFMI - commentary - Trade Now) is the top dollar loser in the Nasdaq today. The company's latest report has sparked a major breakdown today.

WFMI Daily (Nasdaq) -- Whole Foods Market Source: TradeStation

The stock began the day with a very damaging gap-lower open that dropped the stock below major support at its 50-day moving average. After a brief rally in the first half hour, sellers took control, pushing WFMI below its October lows. Volume has remained very heavy, and today will end up being the heaviest downside day since August of '08.

There is likely more downside ahead for the stock in the next few weeks:

WFMI Weekly (Nasdaq) -- Whole Foods Market Source: TradeStation

Once through the $26.90 area, the mid-August and September lows, I expect the selling to pick up again. A test of major support near $25 is a logical downside target. A drop to this level would fill the breakaway gap left following the company's Q3 earnings surprise on Aug. 4. I am not in the stock at this point but would be a buyer at this lower level.

On the upside, I expect the $29.50-to-$30.50 area to provide heavy overhead resistance during a rebound. A rally back up to this area prior to a test of $25 would be a very-low-risk shorting opportunity.

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At the time of publication, Morrow had no positions in the stocks mentioned.

Gary Morrow is president of Yosemite Asset Management, LLC, a registered investment advisory firm in San Luis Obispo, Calif. He manages individual accounts through Charles Schwab and runs a long/short hedge fund. Prior to forming Yosemite, Morrow spent 12 years on the floor of the Chicago Mercantile Exchange trading foreign currency and interest rate futures. He holds a bachelor's degree in economics from Ripon College.