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Beware the Chicken Widow… (PPC)

Posted on May 16, 2019

No one has ever seen her smile like that.

To the age-old question, ‘Do chickens have lips? we’re pleased to report that we finally have an answer.

That’s right, and to the numerous researchers and archivists we employed to search the stacks of the Widener-Squab Special Collections Library, as well as manuscripts from the Wigglesworth Fowler Microfiche Section, we offer a hearty vote of thanksgiving.  Your efforts were rockin’-doodle-doo, your report was chanticleer and your check is in the purse.

As for the answer – it comes out a strong positive.

That is, a look at the last six month’s trade on Pilgrim’s Pride stock (NYSE:PPC) shows investors lining up to put a fat, wet gob-smack on the full red lips of this purveyor of the most palatable poultry provision.

But before we look at the chart, a few less chirpy facts –

  • PPC’s latest earnings report, issued two weeks ago, was a complete disaster. The company missed on both revenue and earnings, with higher feed costs and softer Mexican demand for its pullets taking the blame.
  • The Humane Society has launched complaints against the company with the FTC and SEC, claiming Pilgrim’s Pride’s marketing its birdies as “100% natural” and “humanely treated” is outright false.  Moreover, they claim shareholders are the ones who’ll suffer when the gavel comes down.  The Humane Society is demanding the company either refrain from misleading consumers or clean up their coops.  With authorities investigating, the press has been bad, and the stock has stalled.
  • PPC has also been under significant, increasing pressure to deal with water pollution stemming from both its own facilities and those under contract by the company.

In short, the current news cluster has Pilgrim’s Pride feeling somewhat deflated, and we believe could lead to an out-and-out humiliation.

No Pride in the Charts

A look at the daily action for the last six months shows a number of troubling signs –

  1. First, the run-up off the December lows constituted a nearly 100% gain, and occurred in just eighteen weeks (in red).
  2. Next, an overbought RSI 80 read (in green) was dinged in mid-April that persisted for a full month thereafter – a dire development for any farm animal, let alone a chicken.
  3. And finally, a MACD cross lower just three days ago appears to have sealed the near term bearish fate for PPC.

But there’s more.

Have a gander now at the stock’s weekly chart –

  1. Here, we find a similar issue with the weekly RSI (in green), now overbought for several weeks while upside momentum fades and volume peters out.
  2. Moreover, the round-trip rise after 2018’s disastrous decline has now achieved a precise Fibonacci (0.618) retracement – a level at which we would expect a pause in the action.

Taken together, the above technicals speak to an end of the love affair between PPC investors and their chicks – one that we expect will commence forthwith.

And it’s for that reason we’re recommending the following –

A Jew and His Gold recommends you consider buying the PPC December 20th 23 PUT for $1.00 and selling the PPC December 20th 34 CALL for $1.00.  The result is zero premium.

Many happy returns,

Matt McAbby

2 responses to “Beware the Chicken Widow… (PPC)”

  1. George Mason says:

    Great call on PPC.
    Any thoughts on how far it might fall?

  2. Matt McAbby says:

    Thanks for writing George.
    We believe there’s a good chance it will arrive (eventually) at its long term moving average at $25. That’s a moving target, of course. It all depends on how long the drive takes.
    Take care!

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