Sprout Farmers Market: A hidden gem on the corner of Wall and Main Streets? | Don’t ignore this chart!

Most traders and investors are drawn to smooth trends where the highs and lows are gradual, consistent, and easy to track. The problem is when these characteristics are exhibited by relatively unpopular stocks in sectors that are not necessarily associated with growth.

Sprouts Farmers Market (SFM) isn’t the sexiest stock on Wall Street. But in its neighborhood on Main Street, it’s a popular hybrid grocery and specialty store that’s several notches above the average grocery store. This is a consumer staples stock that has shown impressive gains every quarter since 2019 (per forecast source).

Technically, Sprouts Farmers Market’s upward trajectory has been as smooth as its (underlying) earnings trend. The transaction volume may be somewhat small, but the company’s market power is relatively strong. And it’s one of the few stocks that appeared in StockCharts’ “Best of All Time” scan.

For those looking for exposure to consumer staples in stocks with consistent growth, is Sprouts Farmers Market a good candidate to buy, or could the all-time high be affected by market gravity? Let’s take a look.

Chart 1. Weekly chart of the bean sprout agricultural product market. Note the steady upward trend since 2020 and the transition from a wide/volatility to a narrow/steady upward trend channel.Chart source: StockCharts.com. For educational purposes.

If we look at the five-year performance of Sprout Farmers Market, we see a downward trend in 2019 and reaching the corona crash bottom in 2020. Interestingly, it has recorded positive returns in every quarter except for the August 2019 reporting period (black arrow).

Despite the mostly negative numbers in Chaikin Money Flow after bottoming out in 2020, we can see a steady, albeit volatile, upward trend. (CMF) indicator. And as money flows turn positive in 2022, the trend channel has begun to narrow (see blue channel), leading to this month’s Sprouts Farmers Market consolidating near its all-time high range and the top of the trend channel.

So what does the near-term picture look like?

Chart 2. Daily chart of the bean sprout agricultural product market. Notice how the price reacts strongly to the 50-day and 200-day SMA.Chart source: StockCharts.com. For educational purposes.

The top panel shows that Sprouts Farmers Market has consistently and consistently outperformed its sector, the Consumer Staples sector (using XLP as a sector proxy).

The price chart panel contains a 50-day simple moving average. (SMA) and the 200-day SMA are ‘all sailing’ with a gentle upward trend curve. More importantly, you can see how SFM’s stock reacts sensitively to the two moving averages, seeing either one as a dip-buying opportunity.

To welcome the new year, Sprout Farmers Market stock prices were consolidated into a rectangular shape at the end of December.. This is a continuous pattern according to the research of Thomas Bulkowski. Chart Pattern Encyclopedia, Trends It breaks the uptrend 63% of the time. however, relative strength index (RSI) is shown in the panel below the chart and is falling from overbought territory as SFM consolidates, suggesting a near-term downside is possible.

rising scenario

In the absence of resistance overhead (Sprouts Farmers Market is at an all-time high), a typical forecast for a rectangular trade (giving a target equal to the pattern height) may be too small compared to the downside risk. This is where looking at fundamentals and the larger economy can help gauge the likelihood of a long-term upward trend. SFM could break out on the upside, but can it have enough momentum to keep going without taking a breather?

Disadvantage Scenario

A pullback seems feasible, at least before Sprouts Farmers Market’s next earnings reporting period in February. Therefore, you should closely monitor price movements between now and SFM’s next earnings report date, which is February 29th.

According to Bulkowski, there is a 37% chance that the price will fall below the rectangle. Considering how the broader market is taking a breather after six weeks of gains, it’s likely that SFM will get caught up in the flow as well. However, even if SFM falls to the 50-day SMA, the medium-term uptrend is still valid. And given the quiet bullishness surrounding the stock (for those in the know) and how buyers are jumping on every opportunity as the price hits its 50-day (and 200-day) SMA, it’s likely to provide ample support for the stock. It’s high. S.F.M. In other words, the 50-day SMA provides a lucrative opportunity to buy dips.

conclusion

Although it’s not a noteworthy item, Sprouts Farmers Market (SFM) has provided investors with continued growth. Since the 2020 recession, the trend has continued upward, with positive earnings surprises every quarter and an overall solid “main street” market presence. It is outperforming its segment, showing the potential for continued growth. However, the stock appears overbought, so there is a possibility of a short-term decline. If you want exposure to consumer staples, Sprouts Farmers Market is a good candidate. If there is a downtrend, use the moving average as an entry point and watch the price action to anticipate the next earnings date in February.

disclaimer: This blog is for educational purposes only and should not be construed as financial advice. You should not use any of our ideas and strategies without first evaluating your personal and financial situation or consulting a financial professional.