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Consumer stock pair: Sara Lee (SLE) versus Archer Daniels Midland (ADM)

April 3, 2012

03 April

Sara Lee (SLE) has a long term base against Archer Daniels Midland (ADM). The ratio has traded sideways since May 2011, allowing the 40 week Bollinger bands to contract to their tightest in years.

Sleadm_weekly

The entry signal stated in my methods page is an expansion of the bands and an end of week close beyond the bands. That has occurred once already and did not follow through. Last week’s move was fractionally above the band but has not yet taken off.

A Bollinger Band contraction does not predict the direction of breakout but we can take clues from the direction of the moving average. This still rises and since early March, the ratio has been at the top of its range, not reacting sharply to resistance.

The daily chart shows a more precise entry and the stop loss (as stated) is a move back beyond the consolidation that preceded the breakout.

Sleadm_daily

As we already have the end of week move above the band, the entry signal can be an new high on the daily chart, above 0.69881 on the ratio. The stop loss can be below the early 2012 range, below 0.63423. That is 9.2% lower and if that is too much, you can use the 15 March minor low, half way up that range.

Alerts on ratios can be programmed in the TradeStation platform. These can be made on intraday bars also, which might be a good idea because if this works, it could move quickly. Ask me how that’s done if you are interested.

 

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