Back in late February when WFM was trading $53.45 I highlighted the chart (here) as the first installment in our continuing technical analysis series, “Triangle’s of Death”. Back in February the chart was forming a textbook head and shoulders, and I flagged it as “one of the worst charts I have seen in a very long time”, from Feb 26th:
Since then the stock has broken below the $50 neckline of key long term support and more importantly it has handily broken the uptrend that has been in place since the 10 year lows in 2008:
From Nov 21st 2008 (the 10 year lows) to October 28th, 2013 (the all time highs), the stock went from $3.52 to $65.59, resulting in gains of more than 1700% gains, almost 10x the percentage gains of the S&P 500 during the same period. The true definition of a cult stock, where the stock seemed destined to rise as far as the sky is high, no matter what the news or valuation.
Since WFM in February we have flagged a few other candidates for an exit of their own “Triangles of Death”, COST (here), CRM (here) and WYNN (here), and to be frank it has not been a lay-up for most to play for a break long term support. The purpose of the exercise is to flag once loved cult stock’s that topped out long ago and continue to show poor relative strength, and equally troubling technical set ups. As was the case with WFM it will likely take a shoe to drop as opposed to a slow death, which is why we like the risk reward in most instances of trying to isolate identifiable events like earnings and look to express a defined risk bearish view (as we recently did with COST).
With Costco earnings out this morning, we will wait until 11am to see what sort of guidance they give on their conference call before we look to make a move on our put position.