Schaeffer's Trading Floor Blog

Chart to Watch: Whole Foods Market, Inc. (WFM) Breaks Support

WFM shares breach a long-term moving average after earnings

by 2/13/2014 2:58 PM
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Whole Foods Market, Inc. (NASDAQ:WFM) had a rough turn in the earning confessional last night. Not only did fiscal first-quarter profits and sales disappoint, but the Texas-based upscale grocer also reduced its earnings outlook for the current fiscal year. In response, the stock has shed more than 7.5% to hover around $51.22. Earlier today, however, WFM ventured as low as $50.32 -- its lowest point since last June.

This move has taken the shares south of their 320-day moving average, which had acted as a floor as recently as late January. Since bouncing off this trendline two weeks ago, the stock had been on a collision course with its overhead descending 80-day moving average, which was lying in wait to potentially rebuff any near-term advances.

Daily chart of Whole Foods Market, Inc. (WFM) since December 2012 with 80-day and 320-day moving averages

Zooming in a bit, we see that the stock is sitting just above its lower Bollinger Band, after peeking above its upper band (and therefore into potentially overbought territory) earlier this week. It's also notable that WFM has now retraced more than 20% of its value from its all-time (split-adjusted) high of $65.59, reached in late October.

Daily chart of Whole Foods Market, Inc. (WFM) since December 2013 with 80-day and 320-day moving averages and Bollinger bands

Last night's earnings news sent brokerage firms into a bearish frenzy, as expectations were elevated heading into the report. In fact, of the 19 analysts following WFM shares, 14 had contributed "strong buy" ratings.

Options players are also keeping the faith despite the stock's recent technical challenges. During the last 50 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than twice as many calls have been purchased to open as puts. The resulting call/put volume ratio of 2.11 is higher than 94% of all similar readings recorded during the last 12 months. In other words, long calls have been scooped up (relative to long puts) at a highly accelerated pace over the past 10 weeks.

If WFM continues to falter, a shift in opinion from brokerage firms or options players could result in exacerbated selling pressure.

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