Sunday, January 11, 2015

Is KRFT Poised For Action?

On December 18, Kraft Foods (NASDAQ: KRFT) announced the appointment of John Cahill as its new CEO to replace retiring Tony Vernon.  The news was well received on Wall Street, and the stock reacted with a $0.74 breakaway gap at the open, and then soared for an additional $2.80 to close at $62.84.  Of technical significance, the stock gapped above resistance on very high volume and it never looked back.  The 19th saw volume almost as high as the 18th, and the stock continued to rise.

Chartists will recognize a very well defined flag pattern, complete with a rapid 10% rise in the flagpole, followed by a downward shaped flag that ran for almost two weeks.  The bottom of the flag is imperfect thanks to the turmoil of last week's market action, but overall the pattern looks sound.  Heavy volume returned on January 7th with a strong upward thrust, and it continued on the 8th when KRFT closed above the flag pattern. 

If the flag pattern holds true - and 64% of them do on a bullish break in a bull market - then we could be looking at a price target of $66.27 in the short term.  The only blinking caution lights are a resistance line that has formed in the $64.25 range, and the fact that the resistance line is straddling the stock's 52-week high.

Kraft reports earnings on February 11th at 4:00 PM, so we may see a run to the pattern top as that date approaches.  Cahill's first conference call and forward looking statements will be interesting to watch, and that will determine the direction the stock takes from there.  The stock last paid a dividend of $0.55 in December and is expected to announce a similar dividend for late March or early April. 

On the fundamentals side of the analysis, KRFT carries a lot of long-term debt as of year-end 2013, and their cash flow degraded that year.  The February earnings release will provide insight into whether this is a short term trade or if it becomes a longer term investment under Cahill's leadership.  For now, chartists will want to take a look at the flag pattern and decide if the time is ripe for a short-term play, while fundamentalists will want to monitor the February earnings release for an indication of the direction Cahill will take the company.

Kraft Foods (KRFT)

No comments :