The Stock: Jean Coutu Group Inc.
Yesterday's closing price: $10.54
The Trend
Although last week's rebound was a welcome relief for bullish investors shaken by the recent market correction, the potential for volatile times ahead remains.
Consumer staples stocks, typically referred to as a defensive sector, continue to show their attractiveness in the current uncertain environment. Since last autumn, the S&P/TSX Consumer Staples index has maintained a relative price performance edge over other sectors, rewarding investors in the sector with considerably better sleep. The index is up 6 per cent on the year and has maintained value through most of the past 12 months - exactly the result investors in defensive sectors anticipate. Compared to the plummet of 50 per cent experienced by the materials and energy sectors over the past year, the performance of consumer staples stocks has been stellar.
The Trade
The top-performing stock in the sector over the past quarter is drugstore operator Jean Coutu Group. Shares in the company have outperformed the S&P/TSX composite index by 20 per cent in the past three months and have logged positive gains every week of July so far. The past two weeks have been particularly impressive as volume of shares traded was more than double the weekly average, helping the stock advance to 52-week highs.
Jean Coutu is not the only Quebec-based specialty retailer enjoying the market's sunshine: Alimentation Couche-Tard Inc. jumped 20 per cent last week on positive earnings news.
Both companies are struggling with their franchise exposure in the United States, but investors have been stocking up on these retailers.
The positive price trend of Jean Coutu's shares since the top of the year earned a Stock Trends Bullish Crossover in March when the stock traded at $8.24. Although Stock Trends advised buying the stock then, the trend picture continues to rate the stock as an attractive pick at the current price.
The Upside
Last week's advance through resistance at $10 signals some clear skies ahead for the stock - especially if the commodity rally falters. If investors hunker back down, this defensive stock could move to $12 against the backdrop of a retreating TSX. Commodity stocks will continue to command much of the TSX trading activity, as usual, but the technical trend picture for Jean Coutu offers more conservative investors some positive signals. The 13-week moving average trend line is in a strong supporting position, and can help guide investors through the current bullish trend. Currently, the stock is giving trend traders a green light.
The Downside
This column endeavours to highlight stocks with a positive trend and active technical trading signals. However, good trading practice is less about knowing when to buy than knowing when to sell.
In fact, positive returns will depend on an investor's ability to be "right" about being wrong - knowing when to sell makes a huge difference in trading results. Trend traders like to pinpoint support areas where the stock should hold or rebound. Jean Coutu's current share price support sits near $9.50, so investors picking up the stock now should leave room for a 10- to 12-per-cent drop, exiting the stock should it drop below $9.50. As the bullish trend progresses, this stop price - the price that signals a sell - should advance with the 13-week moving average trend line.
Special to The Globe and Mail
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to http://www.stocktrends.ca/