Tupperware (TUP) – Good Risk/Reward On The Short Side

Household products company Tupperware Brands Corp (TUP) has rallied big year to date and the price action over the past few days suggests a medium-term top may be in place.

On the first chart below, note that on November 1st 2012 the stock broke out of a multi-month resistance line and longer-term consolidation phase.  This important breakout lead the stock to a 35% rally over the course of four months.  On March 5th however the stock started flashing some bearish signals worth paying attention to and the stock has since dropped  almost 5.00% on a daily closing basis.

Last Tuesday March 5th the stock left a bearish shooting star candle behind on its daily chart after reaching an all-time high.  Traders who saw the shooting star formation that day should have increased their risk aversion right-away.  The following day the stock saw an outside day candle, followed by more weakness on Thursday.  Finally, yesterday on Monday March 11th the stock dropped out of a rising wedge pattern on the back of a broker downgrade.  This type of one-two punch that the stock endured over recent days should ultimately get the stock down into the low $70s as a next price target.

Momentum too is an issue that speaks for further near-term downside in the stock.  As measured by the Stochastics indicator, momentum has been waning in recent weeks, and in fact looks to have topped somewhere in late January.  As such the stock had been trading on borrowed time and last week’s high was again not confirmed by higher moving Stochastics.  The negative divergence between momentum and price then finally caught up with price, leading to the weak performance over the past few trading sessions.

The trade setup can be executed either by shorting the stock, buying puts, or selling an out of the money call spread.






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