Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Traders,
As traders, our main job is to separate the noise from the facts. In an age where words can travel at the speed of sound, an initial message can be transformed many times over.
It’s like the game of Telephone – the first in the line would whisper a phrase to the next and down the line to the last. The final phrase would always come out vastly different than the original.
That was the end result of this latest mishap at Anheuser-Busch InBev (Ticker: BUD).
BUD operates in North America, Middle Americas, South America, EMEA, Asia Pacific, and Global Export and Holding Companies. It has 167k employees. They are a monster in the acquisition game and benefit from massive cost advantages worldwide.
They will overcome this blip on the radar in short order.
Today, we’ll take a look at their technical positioning and a trade strategy that will quickly return their reputation as “The King of Beers”.
A Wide Economic Moat
In my opinion the single most important ingredient for a company that brings longevity and advantages over the competition is to gain wide economic moat status.
BUD has done a tremendous job of staying ahead of the competition:
- Through acquisitions for Interbrew and Anheuser-Busch, and more recently Grupo Modelo, Oriental Brewery, and SABMiller.
- Their strategy is to buy brands with excellent growth potential, expand distribution, and squeeze costs from the business.
- Their strategy has given them monopoly type positioning in many of their markets.
Where There is Life, There is Bud
This was a slogan from 1958, and it rings true today. BUD holds a 50% market share advantage in more than half the countries throughout Central and South America.
I’m not sure how much that will slip due to this latest marketing blowup, but my guess is probably not much.
In the new world of inflation that we’ll deal with for the foreseeable future, this type of dominance is even more powerful. It gives BUD a huge cost advantage that supported a Q1 revenue increase of 13.2%.
Charting Pattern
BUD’s charting pattern offers a classic buy the drop scenario:
- It fell below a 25 relative strength index (RSI)
- It’s now on the verge of a bullish Moving Average Convergence Divergence (MACD) crossover.
There is a conservative approach and an aggressive one here. You can wait for a confirmed MACD positive cross above the signal line (Red) while also clearing the 10-day EMA (gray line).
Or you can just buy here at $55, which is what I’ll be doing. I like to be early and anticipate a change because of the bullish fundamentals.
We also have positive option positioning as $55 is a massive strike dominated by Put Gamma that will expire at next Friday’s JUN16 OpEx:
When the puts expire, option dealers will need to buy back their short BUD stock that delta-hedged their option book. This will give BUD a boost, and I doubt many sellers will come back as it rallies.
I see a minimum rally to $60 – $61 which will challenge the 50-day MA . I could see the potential for one more push lower …
However, a new low would trigger a positive RSI reversal pattern (new price low, higher RSI low), which provides a nice opportunity to add to your position.
Consider a long BUD JUN30 56/60 call spread currently priced near $.75 offering a max 4.25/1 reward vs. risk trade.
I leave you with one last great BUD slogan from 2000 …
Whassup?
Live and Trade With Passion My Friend,
Bill Griffo