This consumer good stock (ASX: PBG) soared during the months of March and April. It has retraced roughly one third of the huge decline posted between September last year and last March (between points A and B on the chart). During those 6 highly bearish months, PBG had plunged by 94%, from a high of $2.38 to a low of $0.14.
Actually this plunge was “only” the second wave of a larger bearish trend that really started nearly two years ago, in July 2007, when the stock was trading above $3.50.
Yesterday the stock closed at $0.815. It means that it has been one of the best performing stocks since the global rebound started on the equity markets in early March. Indeed, from the low of $0.14 to the current price, PBG jumped by 482%!
This impressive bounce should however complete soon as the indicators that skyrocketed during 2 months are now showing signs of weakness. After such a rise, a technical correction is almost unavoidable and the stock is therefore likely to fall back on the short-term.
Despite the stock is currently trading on historical low levels, the technical tools are on extreme high values, indicating an overbought configuration. The stock rose so fast so sharply that sellers have now a good opportunity to take the lead and prevent then the price to move higher.
Both the MACD and the RSI have posted, during the first fortnight of May, peak values. Since the beginning of the month, the price action has been consolidating and has been moving sideways, within a tight trading range. As a result, the Momentum developed so far has weakened and the MACD and the RSI have triggered bearish signals. They anticipate a possible trend reversal, or at least a probable counter-trend.
The MACD crossed below its signal line and the RSI escaped from its overbought area. The first main technical resistance lines are higher than the current level: the first one is around $0.95 and the second one is around $1.75. They both correspond to previous support levels, previous lows.
The target for a future correction may be the level of $0.50, which corresponds to two potential support levels (plot in green). This means a possible pull-back of 37%.
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