A Trading Plan for Bullish Supermarket Giant Kroger

A Trading Plan for Bullish Supermarket Giant Kroger
September 21, 2015

 
Kroger Co (NYSE:KR) is the largest full-service grocery retailer in the United States of America. They had more than one hundred billion dollars of sales in 2014, more than thirty operation centers as well as more than two thousand five hundred supermarkets and multi-department stores.

Recent results published by KR show that the company has had a very good 2015, with the prospects of handsomely beating expectations. Same-store growth is on track and even beating the forecasted 4.7%, and fuel margins are helping add to the profitable side due to lower oil prices.

It is no wonder that analysts upgraded the company’s share price which is trading in a range of about $35-$38/share, with bullish expectations for the short to medium term picture.

The technical picture looks rosier than ever, in the sense that the company’s share price virtually tripled in the last five years. If you count the fact that the US dollar is strong in the same period, then this represents a strong competitive advantage for Kroger. The reason for that is that a stronger US dollar gives more power to negotiate better deals from suppliers of merchandise imported from outside of the United States. Economies of scales are achieved this way.

Moreover, for a company that earns its revenues from within the United States, the fact that the US dollar is getting stronger basically does not affect future income streams.

Any retail chain has only limited potential for increasing revenues: adding new stores or selling points and increasing same-store sales on a constant basis. While KR is definitely doing just fine in both areas, now that oil prices are lower, fuel margins have increased and this has contributed into higher profits as well.

Coming back to the technical picture, it is clear now that we had an impulsive move from the $10 level, and price has tripled, we should see a consolidation before anything else. Being an impulsive move, this should be part of a zigzag of a bigger degree, or another impulsive move of a bigger degree. In both cases, it should be a bullish scenario that should lead to higher prices.

The trading plan for the KR stock price is to buy a break higher from the $40/share level, as that implies consolidation is completed and a new leg higher is expected. Therefore, call options from that area with a one month expiration date should be enough for the option to expire in the money.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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