Shares of General Mills rallied 3.4% Weenesday after posting results that beat the Street and issued guidance that was in line with expectations. Could this be the turning point for the consumer staple icon known for some of the greatest cereal brands, from Lucky Charms to Golden Grahams to Cheerios? Shares are lower by about 24% year-to-date. But, yesterday, something changed. It was only the third time over the last 11 earnings reports when General Mills rallied after results. Better yet, from a technical perspective a downtrend was broken, giving investors a great risk/reward entry point. Let’s dig in and examine the trade using multiple time frames for perspective. The trend change… Looking at a one-year daily chart, we see shares have been in a significant downtrend. We can see clear overhead bearish resistance by drawing a manual downtrend line which coincides with the downward sloping 50-day moving average. Wednesday, we experienced a clear gap above the trend on the earnings news, setting us up for a cleaner near-term trade. Shares should continue higher to the declining 200-day moving average around $52. Your downside risk is a pullback to the 50-day moving average. We saw this play-out in March of this year and expect similar results after the latest move. Momentum … Most indicators support the turnaround story. General Mills’ relative strength index (RSI) has been in a bullish divergence since mid-July. The momentum indicator has made a series of higher lows that directly contradict the recent downtrend. On top of that, the percentage price oscillator ( PPO) slope has turned positive in the short-term trend and triggered a buy signal, reinforcing this change in momentum. So short term we are looking good, but the reality is it’s not too sexy. You’re not going to have rapid returns by rushing in. Sadly, not too many consumer staples stocks can do that for your portfolio. What they can do is provide safety. As we head into a new year, this may be a good time to broaden your portfolio to a smarter, safer play. The long play That’s what this trade is — one for the investor looking to put a great quality name on the shelf for a while. Let’s examine the long-term chart and see why the reward greatly outweighs the risk. Let’s look at price action going back a decade. Yes — a decade! The stock has had its shares of peaks and valleys. Trying to time that top or bottom can be a fool’s game, but what we look for are entries that are favorable and signs of a potential turn. We see them here with longer term momentum indicators and a $45 support area going back to the Covid lows. Our Stochastic oscillator has been coiling in oversold ( < 20) conditions for a considerable period, suggesting building demand from buyers and a scarcity of outstanding sellers. The Stochastic recently surged above 20, a textbook signal for potential reversal. The PPO has whipsawed over the short-term. It just had its slope turn positive, also suggesting the momentum is changing towards the upside. For years, shareholders haven’t had too much to cheer about. The good news is we have tested, held and bounced from a major support area, momentum is changing and there is much to reverse on a bounce. A rally back to the 200-week moving average gives us a return of over 30%. That kind of move will take time, but we believe it’s worth a nibble. Investors will need a little patience for this to play out. While it does, you can enjoy that 5.2% dividend over a bowl of your favorite General Mills cereal, Bisquick pancakes or Haagen-Dazs ice cream. – Jay Woods, CMT with Chase Games DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
