Cigarette stocks are known for their high dividend yields and have been a safe harbor for every market pullback over the last 5 years.
But over the last 2 months, there's been a funny cloud hanging over most of the space. Lorillard (NYSE:LO), Reynolds American (NYSE:RAI), British American Tobacco (AMEX:BTI) and even Philip Morris (NYSE:PM) have all been moving sideways during the latest market pullback -- the performance chart below shows that action. But it's a funny cloud because not everyone is stuck in it. Yes, British American has fallen out, but more interesting is the fact that Altria Group (NYSE:MO) has kept going higher.
Pullback Or Opportunity
In fact, Altria has been one of the most successful large-cap stocks all year -- up more than 40% from the early February low. So is it immune to a pullback or is there a potential opportunity about to unveil itself. A quick look at the weekly chart below suggests the latter. From that February low at the bottom of the Bollinger bands® it had a long run higher through mid June before pulling back, this time to the center line of the Bollinger bands®, also the 100-day SMA. That pullback started when the momentum indicator got overheated.
And that's exactly what's happening now.
The RSI is in overbought territory and the price action is showing some topping action as it has moved outside of the Bollinger bands®. Even as a safe haven in a down market, this could pullback to the center line again for a 7.5% gain on a short trade. If you own the stock, it's time to protect it or tighten your stop loss.