3 Stocks With Strong Institutional Support Above 50-Day Line
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It’s a good sign when a stock finds support at its 50-day moving average, something we’re seeing now with Generac Holdings (NYSE: GNRC), Deere (NYSE: DE) and Popular (NASDAQ: BPOP).
The concept of the 50-day line is very simple: It’s the average of closing prices over the last 50 sessions. As the name “moving average” implies, the value of the line will change as days fall out of average, and are added to the average. It’s an easy way to gauge the current price vs. its recent history.
The 50-day line is also an area where mutual funds and other institutional holders will buy more shares to support their position, often at a lower price from prior highs. In the past you may have had analysts painstakingly screening for support; today, algorithms can drive those decisions, perhaps paired with some human decision-making.
For you, 50-day support is worth tracking, as it can signal that a stock is enjoying support from the funds, banks, insurance companies and others who drive prices higher, and that could result in a new rally.
Generac closed Friday at $330.58, 2.1% above its 50-day average. It’s forming a fairly shallow consolidation, following a strong run-up in 2020 and into this year. It advanced 45.37% year-to-date and 240.91% over the past 12 months.
The company makes backup power systems and construction-site power units. The company owns three-quarters of the industry market share for its category.
Among factors driving growth is demand for natural gas and solar generators. Growing need for backup power during planned or rolling blackouts; environmental problems such as wildfires and consumers’ desire to access solar power as a way of reducing energy bills are also factors.
Generac is consolidating after hitting resistance at $364 in mid-February. Since then, the stock has tested its 50-day line three times and successfully bounced higher.
The company reports earnings on Thursday. Analysts expect earnings per share of $1.89 on revenue of $728.95 million. A better-than-expected report, or some other piece of good news, may be a catalyst to send the price higher.
Deere is forming a flat base, which is a shallow consolidation that corrects less than 15% from peak to trough. That type of consolidation indicates a small amount of profit-taking after a run-up, rather than a mad dash for the exits.
It closed Friday at $376.27, 4.5% above its 50-day line. Trading volume has been below average over the past four weeks, which is exactly what you want to see as a stock consolidates. It means institutions are not selling heavily, an indication of confidence.
The stock rallied 40.19% year-to-date and 176.75% in the past year.
A number of factors are driving Deere’s gains. For example, the construction and forestry segments, which are related, have been strong. A recovery in the oil industry has also helped. Deere’s automated “smart farming” technologies are also boosting new product growth.
Here, too, the volume has been muted in recent weeks, while the stock trades in a sideways pattern.
Deere reports its second-quarter on May 21, with Wall Street eyeing per-share earnings of $4.45 on revenue of $10.39 billion. As always, watch for the effect on share price.
Popular is forming a first-stage base. In this case, that means it’s the first consolidation after the stock rallied from the great 2020 meltdown.
Shares closed Friday at $72.82, 4.6% above the 50-day average.
Popular is the holding company for Puerto Rico-based Banco Popular, which operates 174 branches in Puerto Rico, the Virgin Islands, New York, New Jersey and Florida.
Shares advanced 30.01% year-to-date and 114.41% in the past 12 months.
In its most recent earnings call, in January, CEO Ignacio Alvarez cited improving business and employment conditions in Puerto Rico as a growth driver.
The bank reports its first quarter on Thursday, with analysts pegging earnings at $1.91 a share on revenue of $493.55 million.
The stock has been trending along or above its 50-day line since October, a good signal of institutional support. The stock closed higher the past three weeks, in lower trading volume. During a period of price consolidation, higher closes on low volume show levels of buying sufficient to keep the price propped up, indicating investor confidence.
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