Chicken stocks take flight

11/21/19
  • China lifted a ban on US poultry products last week
  • Poultry stocks pulled back after initially jumping on news
  • PPC rallied again yesterday amid heavy call options volume

With America’s favorite poultry-centric holiday around the corner, one recent market development was seasonally spot-on.

In what was seen by many as a good–will gesture amid ongoing trade negotiations, last Thursday China announced it was lifting a ban on US poultry products, re–opening the door to what US Trade Representative Robert Lighthizer described as a potentially $1-billion-a-year export market.1

On the day the news broke, US poultry producers did exactly what you’d expect them to do: Big players like Tyson (TSN), Sanderson Farms (SAFM), and Pilgrim’s Pride (PPC) all shot up more than 4.5% intraday, although they tempered their gains by the close, and spent the next couple of days drifting slightly lower.

The following chart shows PPC’s rally last Thursday pushed the stock above its September highs, a door it had been knocking for a couple of days prior to the announcement:

Chart 1: Pilgrim’s Pride (PPC), 4/23/19–11/20/19. Pilgrim’s Pride (PPC) price chart. Challenged last Thursday’s high.

Source: Power E*TRADE


But after consolidating Friday, Monday, and Tuesday, PPC distinguished itself by rallying more than 1% intraday yesterday, pushing back above the threshold of its September highs and challenging last Thursday’s peak. (It gave back some of those gains later in the session as the broad market weakened.)

The chart doesn’t show it, but Thursday marked the stock’s highest level in nearly two years. And from a technical perspective, at least, PPC has no obvious barriers between its current levels and its December 2017 all-time high of $38.39—a roughly 18% rally from current levels.

Also yesterday’s early rally unfolded as PPC racked up high call options volume relative to put volume, which some traders may see as a potential sign of bullish sentiment. Early in the trading session PPC was on top of the LiveAction scan for high call/put ratios:

Chart 2: LiveAction Scan: High call/put ratio, 11/20/19. Unusual options activity. High relative PPC call options volume.

Source: Power E*TRADE


Yesterday’s rally and options activity wasn’t accompanied by any evident “Big Poultry” news (TSN and SAFM were also up, but more modestly), which could suggest some traders were taking a specific interest in PPC.

With bullish buzz about the end of the bird ban still presumably underpinning the longer-term picture, some short-term traders may anticipate more upside follow-through in the event traders keep pecking away at last Thursday’s high.

Market Mover Update: As retail earnings continue to roll in, Target (TGT) and Lowe’s (LOW) turned Tuesday’s “retail wreck” script on its head yesterday by topping their earnings numbers and posting strong intraday rallies. Also, Walmart (WMT) got a shout-out from investment firm Nuveen as a stock that’s well-positioned to ride out a possible recession—which the company’s analysts expect to be short-lived, if it materializes.2

Today’s numbers (all times ET): Existing Home Sales (10 a.m.), Leading Indicators (10 a.m.).

Today’s earnings include: Baozun (BZUN), Shoe Carnival (SCVL), Gap (GPS), Intuit (INTU), Nordstrom (JWN), Macy's (M), Ross Stores (ROST).

 

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1 U.S. News & World Report. US Chickens Headed to China After Beijing Lifts 5-Year Ban. 11/14/19.

2 MarketWatch.com. Your three-stock survival kit for 2020, says this equity strategist. 11/20/19.

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