Sysco (SYY - Get Report) will report fourth-quarter earnings on Monday with the technical charts showing downside risk. My call is to buy the stock on weakness to its monthly value level at $67.68, which is just above its 200-day simple moving average at $68.06.
Food stocks have performed well so far in 2019 through acquisitions and new online retailing. There are headwinds, however. They include such things as higher prices for food components like grains, edible oils, vegetables, dairy and animal feeds, and rising warehouse rents and packaging costs. The competitive food space requires investments in advertising, tariff protections and currency volatility.
In this environment, Sysco closed Thursday at $70.63, up 12.7% year to date and up 18.8% since trading as low as $59.44 on Dec. 26. The stock is consolidating a bear market decline on 21.7% from its all-time intraday high of $75.98 set during the week of Aug. 24, 2018, to its Dec. 26 low. The stock is 6.9% below its 2019 high of $75.75 set on June 22. I view these twin peaks as a potential double top.
Analysts expect Sysco to earn $1.07 a share when it reports on Monday. The fundamentals are neutral with a P/E ratio of 20.23 and a dividend yield of 2.27%, according to Macrotrends. Wall Street indicates that Sysco's U.S. Foodservice unit will continue to drive sales as year-over-year gains have been extended to 20 years. Analysts cite the strong labor market, which is boosting restaurant sales.
The Daily Chart for Sysco
Courtesy of Refinitiv XENITH
The daily chart for Sysco shows the confirmation of a "golden cross" on May 13 when the 50-day simple moving average rose above the 200-day simple moving average to signal that higher prices were ahead. This led the stock to its 2019 high of $75.75 on May 22. Note that weakness to the 200-day SMA provided buying opportunities on May 31 at $68.61 and again at $68.09 on July 31. The stock rose above its annual pivot at $64.76 on Feb. 4 on a positive reaction to earnings release pre-market that day. The quarterly and semiannual risky levels are above the chart at $80.12 and $81.80, respectively. Note that the stock held its value level for August at $67.68 this week.
The Weekly Chart for Sysco
Courtesy of Refinitiv XENITH
The weekly chart for Sysco will be negative given a close on Fri., Aug. 9 below its five-week modified moving average of $70.76. The stock is well above its 200-week simple moving average or "reversion to the mean" at $57.32. The 12x3x3 weekly slow stochastic reading is expected to slip to 38.93 this week 42.91 on Aug. 2.
Trading Strategy: Buy Sysco on weakness to its monthly and annual value levels at $67.68 and $63.76, respectively, and reduce holdings on strength to its quarterly and semiannual risky levels at $60.12 and $81.80, respectively.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly changes at the end of each month, the latest on July 31. The quarterly level was changed at the end of June. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.