Which Pack of Cigarettes to Buy

• Posted by Greg Harmon
• on July 9th, 2012

Cigarette companies are known as defensive stocks. They tend to go up in a bad economy. But not all cigarette companies are the same. In fact the technicals suggest there are at least 3 varieties: Smoke’em, Protect’em and Buy’em. Take a look.

Smoke’em

These stocks have a Relative Strength Index (RSI) that is overbought and over 80 on the daily timeframe and due for consolidation or a pullback. They are extended from the 50 day Simple Moving Average (SMA) and the Moving Average Convergence Divergence indicator (MACD) is fading. The trend is still higher but it is definitely time to take some profits and not to add to the position. Two fit into this category Reynolds American, $RAI, and Altria Group, $MO, shown in the chart below.

Altria Group, $MO

Protect’em

This group of stocks has an elevated RSI near the technically overbought level at 70 and running flat with that same extension form the 50 day SMA and a MACD that is fading. This indicates a bit less of a buying frenzy in these names and a potential to continue to rise slowly. This could be because these names had taken a hit and are just getting back to all time high levels. It is time to protect these names with a collar or downside put but not yet sell. Again with these names it is not time to add. Two in this category are Lorillard, $LO, shown below and British American Tobacco, $BTI.

Lorillard, $LO

Buy’em

So what does that leave to buy in this space? One name Phillip Morris International, $PM. This stock is finding its way back to the May 1 high with a RSI that is bullish and rising. It is currently breaking short term consolidating and offers a good entry on a break over 91 with a measured move higher to 94.

Phillip Morris International, $PM

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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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