Grocer gets fresh
12/01/17

That loud sound you may have heard yesterday morning was the sonic boom of Kroger (KR) shooting up nearly 14% in early trading after releasing stellar Q3 earnings numbers.

The grocer handily beat its consensus earnings estimate (44 cents vs. 40 cents) and showed promising revenue from its ramped up digital sales initiative.1 It was KR’s sixth-biggest daily rally of the past 40 years, and the first time since 2005 Kroger posted a double-digit one-day percentage gain.

The daily chart below highlights the magnitude of yesterday’s move—as well as the even more dramatic sell-off KR experienced in June, after which it sagged to a two-and-a-half-year low in early October. (Hmm…did some of that take place around the time Amazon was scaring the daylights out of the supermarket industry by throwing Whole Foods into its shopping chart?)

Kroger (KR), 6/8/2017 – 11/30/17

Source: OptionsHouse

Yesterday’s rally, which was preceded by a consolidation breakout that seemed to anticipate the good news, was accompanied by 20x normal options volume, including more than 10,000 December $26.50 and January $25 calls hitting the tape. And the move brought the stock to an interesting position: back to the general level of the June double-down gap, but not quite to the level where it first broke down (around $29.50).

Also, like a shopper who decides he maybe doesn’t need 12 quarts of Ben & Jerry’s in his cart, traders seemed to decide yesterday’s surge may have been just a bit too much of a good thing, gradually taking the stock from it’s high of $27.70 to around $26.25 with a couple of hours left in the trading—below the open and in the bottom half of the day’s range. (That still represented a nearly 8% gain, though, which ain’t too shabby.)

Is additional belt-tightening in store for KR in the near-term? A weekly chart shows yesterday’s high landed smack-dab into a resistance zone capturing the stock’s 2015, 2016, and 2017 lows.

Kroger (KR), 8/23/17 – 11/30/17

Source: OptionsHouse

Kroger’s fantastic Q3 numbers show grocers might not be ready to thrown in the towel, and further growth is possible (see "Grocers shop for tech"). But it wouldn’t be shocking if some investors took some profits on the current jump, especially at such a conspicuous technical level. The stock has only had a handful (fewer than 20) of 10% or larger moves in the past, and while the average result was a day of higher prices followed by several days of weakening price action, a weak close on the rally day was usually a sign of immediately stagnating prices.

 

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1 BizJournals. Here’s why Kroger stock is jumping. 11/30/17.