Sprouting into 2016 or ready for fresh lows – Sprouts Farmers Market

• Posted by Greg Harmon
• on December 28th, 2015

Natural and organic food stocks have had a mixed 2015. Grocers in general are in that same boat. One stock that falls right into that pattern is Sprouts Farmers Market ($SFM). This stock showed up on a bullish stock scan last week and looks good in the short run. But will it continue to grow?

The chart below shows the price action in Sprouts since late 2013. A bit of a downtrend falling from over $48. But since August it has been moving higher. Can you trust the move for more upside? Perhaps. The Bollinger Bands® opening to allow the move higher are a good sign. And the momentum is strong with the RSI in the bullish zone and rising along with the MACD.

But there is also a possible 3 Drives pattern growing in the chart. The first two legs down are complete. This pattern would look for a reversal lower around $29 to a move down near $8 to complete. From there it would look for a reversal higher, retracing 38.2% of the full pattern or if really strong 61.8%. From $8 that would mean targets of 23.25 and 32.75. A great move from $8, but a lot of pain to get there.

So how do you know if the reversal is happening now or it is a 3 Drives? You don’t. Continuation over $29 would help in building a bullish case. And then a higher high over 38.50. Until then if you hold this stock all you can do is protect the downside with Puts or a stop loss.

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Still time left. Contact me at greg@dragonflycap.com and use the code SANTA in the message to get either an annual subscription for $556 (10% off) or an annual subscription plus my book signed for $600.

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