A Peculiar Cloud Over the Cigarette Stocks

• Posted by Greg Harmon
• on October 7th, 2014

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Cigarette stocks are known for their high dividend yields, and have been a safe harbor for all the market pullbacks over the last 5 years. But over the last 2 months there has been a funny cloud hanging over most of the space. Lorillard ($LO), Reynolds American ($RAI), British American ($BTI) and even Phillip Morris ($PM) have been moving sideways in the latest market pullback. The performance chart below shows this action. But it is a funny cloud because not everyone is stuck in it. yes British American has fallen out, but more interesting is that Altria ($MO) has just kept going higher.

In fact Altria has been one of the most successful large cap stocks all year up over 40% from the early February low. So is it immune to a pullback or is there a potential opportunity about to unveil itself. A quick look at the weekly chart below suggests the latter. From that February low at the bottom of the Bollinger bands it had a long run higher through mid June before pulling back, this time to the center line of the Bollinger bands, also the 100 day SMA. That pullback started when the momentum indicator got overheated. And that is exactly what is happening now. The RSI

is in overbought territory and the price action showing some topping action as it moved outside of the Bollinger bands. Even as a safe haven in a down market this could pullback to the center line again for a 7.5% gain on a short trade. If you own the stock it is time to protect it or tighten your stop loss.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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