Expert Technical Analysis: Sysco (NYSE:SYY)

[Post Summary]

I have drunk my wine with my milk.
—Song of Solomon

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What does it say when you are concerned about the fortunes of a food distributor?

A couple days ago the stock of SYSCO (NYSE:SYY) was mentioned on CNBC. In light of my recent article highlighting the impact bankruptcy of Pilgrims Pride is having on the availability of chicken wings I thought I should take a closer look at food distributor SYSCO. There appears some reason for concern.




Is SYY's head and shoulders top legitimate? Volume registered during formation of the right shoulder is somewhat suspect. Typically, it is notably less than volume registered while prices rise to form the head.

Elevated volume registered as the [rising] neckline was penetrated to the downside (Q3 '08) fits the character of a head and shoulders top as described by Edwards and Magee. Thus, SYSCO's head and shoulders top might be legitimate. If so, then the minimum price objective this pattern projects is in the vicinity of $11. Yet SYY could fall still further.

(A head and shoulders pattern allows the analyst ability to project a minimum price objective. This represents the very least to expect. The move could prove larger than the minimum projected, however.)

One thing to add is the fact a reaction back up to a head and shoulders' neckline typically follows its downside penetration. So, SYSCO might rise back to the area of $30 before turning south again. This possibility seems all the more likely given how SYY found support, 2001-2002, in the same area to which it has just fallen (i.e. low $20s).

Watch volume on a reaction back up to the neckline. Seeing how over the past two years volume has been increasing with each new decline in SYSCO, one would expect volume to come in during any upcoming advance. Should volume contract as SYY reacts back up to its head and shoulders neckline, beware, as this would indicate buying lacks staying power.

From an Elliott Wave perspective SYY appears to have formed five waves up from 1975, with the fifth wave (from 1987) an "extension." Fifth wave extensions typically retrace to the area where the extension began. This puts $5 in the SYY cross hairs.

Considering how the ongoing financial crisis is impacting world trade, it is disconcerting imagining what might be portended by a food distribution company whose business is at risk of shrinking. The fundamental reality a credit crisis might be precipitating a food availability crisis lends credibility to a technical view of SYY projecting the possibility its stock price might fall steeply over the next few years.

—Tom Chechatka