Look For This Stock’s Downtrend to Continue

Option Trade of the Day: Campbell Soup (CPB)

The bounce back rally that has taken over after the big correction seems to be getting a little tired. The S&P extended its winning to streak to six days on Friday, but just barely as the index eked out a small gain. As a result of the slowing momentum, the bearish signals from my scans exceeded the bullish scans for the first time since January 31.

There were four bullish signals and ten bearish signals.

With the bearish scans exceeding the bullish ones and the fact that we have had five straight bullish trade ideas, I have a bearish trade idea for you today.

Campbell Soup Co. (NYSE: CPB) has been trending lower for the past year and has struggled to participate in the upside move of the overall market.

The company reported earnings on Friday, and the stock fell after the report. Prior to the report, CPB had bounced a little, but it still had not managed to break out of its downtrend.

We see the trendline that has formed on the weekly chart and how the stock hit it last week. There was an eight-day upward trend ahead of the earnings and that took the stock right up to the trendline, but it was unable to break through. It probably didn’t help that the sentiment toward the stock had reached an excessively bullish level just ahead of the earnings report. With the downward trend still in place and the earnings being disappointing, I look for the downtrend to continue in the weeks ahead.

Buy to open the May18 47 strike puts on CPB at $2.70 or better. These options expire on May 18. With the downward trend and the unwinding of the bullish sentiment, I look for CPB to break through the support at the $43.50 area and move down to a multiyear low. With these options the stock will need to move down to the $41.50 area, but I think that is a distinct possibility at this time.

— Rick Pendergraft

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.