When it comes to technical analysis, I consider myself a “hobbyist” of sorts. One of the first things that I learned in this business was recognizing patterns that geniuses before me had already defined. Every once in a while, when looking through a couple hundred stock charts daily, I like to come up with goofy names for patterns that I see. This morning, I am looking at probably one of the worst charts I have seen in a very long time, WFM.
The one year chart below is the newly coined Triangle of Death pattern that could only result in lower lows! Well maybe only, unless it breaks above the downtrend line 🙂
Obviously all of the genius technicians are going to tell me how stupid I am, how could I have missed the obvious head and shoulders top with the neckline at $50, ok I got that, but I like my thingy better. There is nothing bullish about the price action, any way you draw the lines, especially when you consider the S&P 500 back near all-time highs. WFM is one of the few retail stocks down on a day when the XRT (of which WFM is a component) is up nearly 2%.
The two year chart below gives a little more perspective and reinforces just how important the $50 support level is dating back to the May 2013 breakout to new all time highs. A break below would put that gap in jeopardy.
One more chart that I don’t have a name for is the 2 year chart of WFM’s 30 day at the money implied vol (IV). Implied vol in WFM is reaching a fairly low level despite the stock’s weakness:
As a result, premium is relatively cheap in WFM. The April 52.50 put is offered at around 1.45 (with stock at $53.35), which would break-even at 51.05, down about 4.3% A decent structure for someone who thinks the probability of a break below $50 is higher than options market makers currently have it priced.