Tractor Supply (TSCO) was upgraded Friday to Buy by a sell-side fundamental analyst. In our October 25 review of TSCO we recommended "TSCO could trade higher with strength in the broad market averages, but some bearish divergences suggest we may see a sideways to lower correction in the weeks ahead. Traders who are long should raise stops to $190 from $170. We may still reach our $225 price target and that is probably a good location to take profits."
With hindsight we can see, chart below, that traders got the opportunity to take profits at and above our $225 target. TSCO has pulled back this month but this fundamental upgrade is a good reason to check on the charts again.
In this daily bar chart of TSCO, below, we can see that prices have pulled back in January towards the rising 200-day moving average line. TSCO is trading above the 200-day line but below the declining 50-day line.
The On-Balance-Volume (OBV) line is a "problem indicator" in that it has been declining from May and did not rise to a new high in the past few months as prices have strengthened. This is a bearish divergence.
The trend-following Moving Average Convergence Divergence (MACD) oscillator is below the zero line with a sell signal.
In this weekly Japanese candlestick chart of TSCO, below, we can see that prices have been strong the past two years and are still above the rising 40-week moving average line. The weekly OBV line shows us a more positive picture than the daily line. The MACD oscillator has crossed to the downside for a triple take profits signal. A bottom reversal pattern has not (yet) appeared.
In this daily Point and Figure chart of TSCO, below, we can see a potential upside price target in the $244 area.
In this weekly Point and Figure chart of TSCO, below, we see a potential downside price target in the $171 area. It will take a pretty big rally to turn this chart bullish.
Bottom line strategy: The charts of TSCO are just "okay" with the weekly Point and Figure chart suggesting a bigger decline could lie ahead. TSCO could make a bounce back up to the recent highs so if traders want to play the long side again they could do so with only risk to $201.
