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SuperValu Is About to Spoil

Dividend investors who bought SuperValu to collect the fat dividend will hit the bricks by the weekend with a new lesson learned; sometimes it doesn't pay to chase yield.

SuperValu already was trading below the widely followed 200-day moving average, adding fuel to the liquidation based on chart technicals. Revenue is trending down in much the same way as the stock is falling.

SVU Revenue Per Share TTM ChartSVU Revenue Per Share TTM data by YCharts

Earnings appears even worse than revenue with large per share and over all losses in the last four years.

SVU Earnings Per Share TTM ChartSVU Earnings Per Share TTM data by YCharts

Safeway's stock didn't fall in afterhours trading in sympathy with SuperValu. While Safeway is not adding to shareholder value recently, the company may find itself in a good position if SuperValu begins to sell off or close stores. Target, Wal-Mart, and Whole Foods are executing fantastically, demonstrating if you provide what the consumer desires, profits will follow.

Insiders own less than 1% of the company, but in the previous six months they didn't sell enough to develop a clear bias. I like to see management's and investors' interests aligned. With SuperValu, I can't say it's the case.

Based on my experience with gap downs following news-driven events similar to SuperValu, investors will see short-term lows Friday or Monday. I expect the stock to open on Thursday near or under $4 per share with morning strength, followed by weakness as the day progresses.

Upon reviewing the SuperValu chart, I expect short-term resistance near $4 and again at $5. Round numbers often attract like a price magnet and repel, causing a bounce. Expect a lot of volume to trade near $4 a share, but also be prepared for bargain hunters to start positions under $3.50 as an entry.

If you are looking for Thursday's drop to signal a buying opportunity, you may find Friday or Monday to offer the best opportunity. There is no hurry jumping on board with SuperValu. Stocks dumping as a result of headline news normally take at least one, and more often two, good quarters before the market to find value. Watch for the second break above $5 as the one that "sticks."

Stock quotes in this article: SVU, WMT, TGT, SWY, WFM, GS, GHL 

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