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MO Trade Setup

MO (Altria Group Inc) will trigger a short entry on any move below 66.05. T2 (56.54) is the current final target with a suggested stop above 69.20 (or lower if only targeting T1).

note: I have a long list of attractive short setups in the consumer staples sector, including XLP (consumer staples ETF), which will likely be added as short setups. Should you plan to add short exposure to the consumer staples sector, make sure to estimate your total target exposure to the sector in advance in order to determine the proper position size for each individual position if you prefer to trade individual stocks vs. a shotgun approach to shorting the entire sector via XLP (a diversified ETF).

Another consideration when trading the consumer staples is the fact that most of these companies are about a third less volatile than the broad market. For example, MO has as beta of 0.67. As such, one could increase their position size by approximately a third (33%) to account for the below average volatility in the same way you might adjust your position size down when trading a high-beta stock or ETF.

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Aug 5, 2016 2:21pm|Categories: Completed Trades - Short|Tags: |10 Comments

10 Comments

  1. snp August 5, 2016 2:26 pm at 2:26 pm

    first cannabis, now tobacco, alshaw was right…holy smokes

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  2. Ruben August 5, 2016 2:31 pm at 2:31 pm

    Randy,
    MO is a stock you want to own on any pullback. It usually outperforms the market and goes up when the market goes down. I would never short this one. I own the stock for my clients and my self since low 20’s. Also 9/13 is their next Dividend pay out so keep an eye on vol.
    who ever is shorting this one should definitely use stops. My opinion.
    Thank you

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    • rsotc August 5, 2016 3:02 pm at 3:02 pm

      As a former stock broker/financial advisor, I am very well aware that MO is considered (and historically has been) a defensive “steady-eddy” stock, something you’d put granny’s money in. I’m also aware that while short, I will be on the hook for the dividend which is about 3.4% per year but if the trade plays out, assuming that it even triggered an entry & becomes an active trade, I’m looking for a minimum drop of roughly 9% which will likely take only a couple of months at best (giving back less than 1% of those gains in the form of one quarterly dividend payment or 3.4%/4 quarters). Should MO go on to hit my final swing target for a 15% gain, I would expect that to happen well within 1 yr, most likely within 6-9 months, thereby reducing my net gain by less than 3%. Again, those figures are based on my read on the charts.
      I really do appreciate your feedback & I will that I can honestly say, the current technical outlook for MO is by far the most bearish it has been for at least the last decade & just since the 2009, MO has seen at least two corrections of over 15% so I would also suggest the use of stops for those long the stock as well.
      On a final note, the distortions in the financial markets created by the extreme interventions of the global CB’s are unlike anything that we’ve seen in the history of financial markets. It might seem odd that I find defensive stocks as some of the most compelling short trades over 7 yrs into a bull market already well past the historical average lifespan & while the majority of economic indicators have been trending lower, pointing to a slowing economic & possible recession on the horizon (which is usually when we start to see a rotation into the defensive names).
      One of the most widely acknowledged distortions created by the Fed is that in which they’ve forced investors that typically prefer income & safety (fixed income buyers) into dividend stocks to replace that lost income, which in turn, has led to excessive valuations in many dividend stocks. In fact, I’ll post long-term chart of MO under the comment section under the MO setup which will show that MO just hit an extreme peak in it’s P/E ratio that was only seen one time before… Dec 1999 just before the 2000 market top, with MO immediately plunging 69% from that peak.
      Of course, just like back then (and I was a broker at the time & clearly remember), they are saying it will be different this time as well, as the extreme valuations are justified because… (fill in the blanks).

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      • Ruben August 5, 2016 3:15 pm at 3:15 pm

        I agree with you Randy. but this stock is recession proof LOL it is a cigaret company. these guys are better then our government!!!! they are a printing press with so little debt. Though if this one pulls back I will buy more.

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      • snp August 5, 2016 3:33 pm at 3:33 pm

        butt butt butt marlboro

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  3. snp August 5, 2016 2:54 pm at 2:54 pm

    I would add that there is a 3rd hit TL at just under 66 and a fib level at 65 and price support that has not been tested yet also at 65 and price is far extended below the daily 20 ma, so risk reward is not favorable. the 70 level was identifiable using a fib from $47. I agree with ruben and was actually looking for a buy in level.

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  4. rsotc August 5, 2016 3:31 pm at 3:31 pm

    The technical case for a short on MO was made in the post above. A fundamental (overvaluation) case that the R/R over the next year or so favors being short vs. long could be argued in this 30 year monthly chart of Altria Group (f.k.a. Philip Morris before the spin-off of PM back in 2008). As this chart illustrates, the only time MO has ever seen such extreme valuations (again, by this metric) was In December of 1999 with the stock immediately plunging 69% in just over a year from that point.

    In fact, that 30 yr chart of MO reminds me of a very similar chart that I posted on another beloved, steady-eddy dividend stock back in 2014 while both CVX and the energy sector were both solidly entrenched in one of the strongest bull markets in history. As with MO today, I was also calling for a visit to a nearly identical primary secular bull market uptrend line (which was hit the following year after the biggest bear market in CVX in years).

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  5. alshaw August 5, 2016 9:45 pm at 9:45 pm

    bravo bravo bravo i like that short

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  6. rsotc August 8, 2016 9:35 am at 9:35 am

    FYI – MO short entry just triggered on a move below the rising wedge/66.05.

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  7. rsotc August 8, 2016 9:42 am at 9:42 am

    Although not an official trade, RAI is another one of several tobacco companies that looks to be headed lower in the coming weeks/months following the recent breakdown below this large rising wedge pattern. First target would be the intersecting blue uptrend line and/or 47.05 support.

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