Astral Foods

Triple screen

Monthly chart

We had a bullish divergence pattern as the stock held the 200 month EMA. A bullish divergence is a classing reversal pattern. The stock has since formed a base with what is starting to look like a cup and handle pattern. Another reliable classic chart pattern. The neckline of the cup and handle pattern is around the 50 month EMA. The stock broke the downtrend resistance level, came back to test it and is holding it well at the moment as support. If the stock can close through the R160 neckline and above the 50 month EMA. The odds of the stock moving back higher back to the R335 highs increase. With a long term stop loss around R120 and a long term target of R313. WIth patience it’s a good 1:4 risk:reward ratio.

Weekly chart

The stock currently forming the handle finding a tug of war around the 50 week EMA. With more green weeks than red ones. Signaling that more battles are won by buyers. If the stock closes below R130 it would seem sellers are winning the war. However, with a close above R160 that would signal that buyers are winning the war. If the stock closes through R160 it would be closing the 200 week EMA as well. Improve the risk:reward.

Daily chart.

We recently had a golden cross showing that indeed buyers are a bit stronger than sellers albeit not by very much. At the moment the status of this stock is waiting on the sidelines waiting for the R160 breakout. With an initial wide stop around R130 or R140 if being slightly aggressive with the stop loss.

Looking at the company

Unfortunately the company fell short of the input cost sweet spot (R2200 – R 2450) stated in the interim results. The average cost for yellow maize was around R3397, a 33% miss.

The good news is yellow maize is a cyclical commodity and prices are starting to slide off. Breaking a long term trendline. I’m anticipating a further decline in maize.

Food retailers are reporting good numbers at the back of South Africa’s version of the stimulus cheques. The Covid-19 grant usually ends up in the food retailers to which they are well positioned to benefit from that. The recent strike doesn’t help the company one bit. I’m anticipating a recovery to input dropping as maize prices decrease. The company should recover profitability. We will see the impact of the recent strike. Despite a tough period the company nonetheless declared an interim dividend.

With the stock being in a low base having broken the long term down trendline the risk reward is quite enticing, keeping a tight stop loss around R130 and waiting for a R160 breakout.

The status for Astral foods remains waiting for a break above R160. Below R160 the risk outweighs the reward.

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