Bright and early on this fine Wednesday morning, JPMorgan downgraded Tyson Foods (TSN) to Neutral from Overweight. The brokerage gave four reasons for the downgrade: valuation, recent rises in corn and hog prices, a looming supply increase from competitor Sanderson Farms (SAFM), and uncertainty from Pilgrim's Pride. All of these reasons are perfectly valid for the downgrade, but I want to focus on the valuation aspect of the downgrade. Technically, TSN faces overhead resistance in the $14 region, which is significant as the shares are currently ascending through the upper $12 region. The $14 level spurned the shares earlier this year, sending them into a steady decline back to support at the $11 region.
There is good news, though, because the stock is perched atop support from its 10-week moving average, which, in conjunction with its 20- and 50-week cohorts, have helped the shares consolidate in the $12.50 region. That said, the shares face resistance from their descending 50-month moving average. The last time the equity finished a month atop this trendline was June 2008, so it faces a possible rejection at this benchmark again.
TSN started the morning lower thanks to the downgrade. Make sure to monitor the potential support if you are trying to decide whether or not a dip may constitute a good buying opportunity. Otherwise, it may be best to play TSN cautiously -- almost like a chicken (yes, I went there).
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