Stock Of The Day: Time To Buy General Mills?

General Mills, Inc. GIS is trading lower on Wednesday. The company reported earnings and Wall Street didn't like what it heard.

Our team of technical analysts has made it our Stock of the Day. There is a good chance the shares rally off of the current levels.

The company posted earnings that were better than estimates. For the quarter, General Mills earned $1.40 per share. This was well ahead of the $1.22 the Street was looking for.

Sales were higher than estimates as well. They came in at $5.24 billion. Analysts were looking for $5.14 billion.

But the stock is getting hit because the company lowered its full-year earnings outlook.

General Mills is now looking for earnings to be down 1% to 3%. This compares with previous guidance for a 1% decrease to a 1% gain.

There is a good chance the stock will reverse and head higher.

As you can see on the chart, over the past year each time it dropped to around $62.50 it found support and a rally followed. It could happen again.

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In the stock market, some price levels are more important than others. That's the case here. $62.50 is an important support level.

Sometimes, an important price level can retain its importance for a long time. This is referred to as “market memory.”

Support levels can stay intact because of psychology. There are traders who sold shares while the stock was previously at support. Some of them regretted their decisions to do so when the price rallied soon after.

A number of them decide to buy their shares back if they could get them for the same price they were sold. As a result, when the stock fell back to what had been support before, they placed buy orders.

If there are enough of these buy orders, it creates support again at the level. That is what happened here.

Sometimes stocks rally off of support levels. This happens when the people who created the support with their buy orders are afraid someone else will be willing to pay a higher price.

They know that's who the sellers will go to. They don't want to miss out, so they increase the price they are willing to pay. Others see this and do the same thing.

It could result in a snowball effect that forces the stock higher. It's happened before with General Mills and it may be about to happen again.

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Photo: T. Schneider via Shutterstock