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Has Sunopta Optimized Its Place In The Sun?

01/26/04 09:34:48 AM
by Koos van der Merwe

Sunopta Inc. operates in three principal businesses: natural and organic food product sourcing, processing, and packaging; processing, distribution and recycling of environmentally responsible aggregate products and; engineering and marketing of a clean pulping system using patented steam explosion technology.

Security:   SOY-T, STKL
Position:   Accumulate

The share price has suddenly started moving up, and strongly at that. It is not for me to ask why, that is the job of the fundamentalist. It is though, my job to look at the charts and determine whether the patterns are telling me that the stock is worth investing in -- for the short or long term.

On the September 23, 2002, the price of the share was $2.20, having risen from a low of $0.04 in January 1995 (not shown on the chart). Its trading pattern was speculative and on low volume. From September it rose to $3.48 in November 2002, and then moved sideways still on low volume, not attracting any particular attention. Then on February 13, 2003, on above average volume, the share price suddenly started to move up. Why? Searching through the news, I found that its home is in Norval, Ontario Canada, where the company name was Stake Technology (SOY-T). It was listed under the same name on Nasdaq, (STKL).

SunOpta... a share to watch
Graphic provided by: AdvancedGET.
On February 4th, the closest date to February 13th, the following was announced: "John D. Taylor Resigns From Stake Technology, 16:55 EST Tuesday, February 04, 2003."

Was the resignation of John Taylor, President and CEO of the company, that beneficial to the company? It appears so, because whatever his successor, who incidentally was not appointed, did for the company, on March 20th, the company announced record sales and earnings. From that date forward, the things never looked back, with the share price reaching a high of $11.15 on September 23, before falling back to $7.50 on December 8th. Since then it has risen to $10.05 (January 22, 2004). The question now is, what about the future?

On July 3rd, 2003, from a high of $8.02, the price pattern entered a consolidation triangle. Nothing significant appeared in the news about the company, except that on June 19, 2003, the company announced it had changed its name from Stake Technology to Sunopta. The reason given for the name change was that the Board felt "Sunopta, better describes its business in the natural and organic food sector and combines the names of two of its food operations: the SunRich Food Group and Opta Food Ingredients." The consolidation triangle gave a target of $9.93, and the price advance did pause at $9.53 before continuing its rise.

From the September high of $11.15 it appears to have fallen in a flag pattern. This would give an upside projection target of $16.45 (11.15 - 2.20 = 8.95 + 7.50 = 16.45) if its advance into the flag is taken from the low of $2.20. Because of the triangle it could be argued that the advance should be from the low of $5.07 reached on July 16. This would give a target of $13.50. Both targets are shown on the chart, although not to scale.

A second pattern, an inverse head and shoulder, has appeared (green). Volume for the head is greater than that of the left shoulder, a pattern of weakness which is correct, but the volume of the right shoulder is approximately equal to the left shoulder. The target, if this pattern is true, is $11.18 ( 9.34 - 7.50 = 1.84 + 9.34 = 11.18). This is close to the high of $11.15 reached on September 23, suggesting that this point could act as a very strong resistance level. Either way, whatever the target count, there is a profit to be made should you buy at the current price of $10.05. The stop-loss at 10% will be $1.00. With a 2.5:1 risk reward ratio, the profit target should be $2.50. With the target of $11.18 as suggested by the inverse head and shoulder pattern, the risk is too great, as the profit would be $1.10, (11.15 - 10.05 = 1.10). However, should the price break through the resistance level of $11.15 which the flag pattern suggests, the reward of $3.45 (13.50 - 10.05 = 3.45), the minimum target suggested for the flag pattern, meets my risk reward ratio. Should the price rise to the upper target suggested by the flag, then I am handsomely in profit. I would therefore buy at present levels and let profits ride, with a rising stop calculated from each new high made.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
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