HRL - Hormel

HRL had a change of character. Some preliminary supply (PSY) came into the market beginning the end of December where the big boys unloaded some of their inventory. Then from mid January to mid February it went into a buying climax (BC) where the big boys were selling into the public buying frenzy. Then for 6 weeks it held the highs but had a number of weekly low-range closes. The big boys were distributing for those 6 weeks; taking profits at the expense of the public. The fact that it couldn't get back up to the BC indicates that the boys were competing to push as many shares as they could out to the public. Then it fell apart in an automatic reaction. Note the high volume and volatility compared to the mark-up phase; another indication of a change of character and an indication that the stock is changing hands from strong to weak; from the big boys to the public.

This change of character will result in a consolidation. What we don't know yet is if this trading range will be distribution or re-accumulation by the big boys. As the trading range develops and the volume tapers off that would be a clue that the big boys are re-accumulating as they are locking most of their shares in a box in anticipation of higher prices. If the volume does not appreciably taper off this would indicate distribution is taking place; that more and more shares are in the hands of the public; those without intimate knowledge; those who cannot control the supply of stock put up for sale on the market.

It looks like the AR may have completed and the stock is worthy of a position trade. But, after it tests the BC with a secondary test (ST) it will go into a cause-building phase that will be trendless, erratic, and hard to trade. For a long term investment it would make more sense to me to wait for the ST and then wait for a test lower on lower volume showing that the supply has dried up. Then a sign-of strength will prove that the TR was accumulation and that the big boyz are in control and intend to move it higher.

 

Hey Jerry, my home town is about 3 hours due west of yours in another packing town just across the state line. In fact a large part of my education was financed by a union job at John Morrell. We slaughtered pork, beef, and lamb but hogs were by far the largest part of the business. The hog chain ran at 1000 per hour 10 hours a day or 10,000 a day. We earned every penny of our pay and people doing that work now are simply being taken advantage of imo; at least since Mr. Reagan crippled the unions. But I digress. I still have a small farm about 3.5 hours NNE of Austin in NW Wisconsin but I now work in Arkansas; home of Walmart, Riceland, and Tyson Foods. But yeah, I've been by Austin a time or two but never really stopped in.

What I described about the chart is ancient knowledge, from the father of technical analysis, Richard Wyckoff. For example he was the first to coin the words "support" and "resistance"; and flags and pennants, those were originally Wyckoff principals but he didn't use those names. He scoffed at the mechanical application of such things. It's more about understanding what is happening in the market by the price and volume action and not blindly obeying some "signal". All the indicators are pretty much the tail wagging the dog if you ask me, and they lag. But as you say as long as one is consistent and manages losses it can work, if you are really truly disciplined.

You asked about the big boys. Okay they are what Wyckoff called the Composite Man (CM) or the Composite Operator; the aggregate of all the very large operators in a stock. They are very well capitalized, have intimate "fundamental" knowledge of the company, they know what is coming well before the public, and they are few in number. They can be billionaires, hedge funds, insurance companies, and other institutions. But not all institutions are in the CM class. So say you have 6 really big operators in HRL. If they traded amongst themselves they wouldn't make any money; it'd be a wash. But now enter the public and they have a million suckers from which to make money. They totally understand the psychology of the publics' fear and greed and they totally understand the publics' obsession with the 50 and 200 day moving average and various other patterns and the way the public follows the various corporate releases, analysts reports and other fundamental spoon feeds. And, they totally understand how to make the fundamentals and news look really good when they want to sell and really bad when they want to buy. Most people don't want to hear this stuff, it goes against their belief system about the market, but Wyckoff was teaching it back in the 10s, 20s, and 30s. Honesty like his is unheard of today. But not too many listened to him back then and even fewer do today. It all boils down to reading the tape to figure out what position the CM is taking; and follow what he does not what he says through the media.

My bottom line take on HRL though is that it will make an attempt to retest that buying climax and that is about 17 to 18% higher. But I wouldn't expect much more than that until it has built some cause and proved it is being re-accumulated by the CM. I may follow you on this one with a call about 2 months out.

 

Jerry, I haven't acted on this one and I understand the ER is before market open. I will see what kind of price noise the ER generates. Long term I am leery of it. It's only yielding 1.44% annually on the dividend. To yield 4% the price would have to be about $14. I still think though that it will test higher before heading down. If you are still holding, I hope it pops for you.

 

Yeah, most people are totally unaware of what it takes to keep them alive day to day. I think Ted Nugent said it best:

“You know, one of my favorite celebrations is the honesty of what sustains us. And you see an Anthony Bourdain or the bizarre food and you see these guys going through the process of the uncomfortable reality of preparing food for the masses. Ladies and gentlemen, boys and girls, write this down: Your life has a gut pile. Know it, love it, admit it, and then you will be more responsible with fewer gut piles. But if you are not privy or honest enough to admit the system by which sustains you, then you can pretend and hire bureaucrats to waste everything in your name, USDA, FDA, OSHA, onward, insanity. So this individual lifestyle, I’m telling you..I”m not the weirdo. People who don’t understand gut piles are the weirdos.”

HRL looks like it is printing a hinge for lower prices. Jerry's 34 looks like a likely spot for stopping action.