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Off the Charts: General Mills

Cramer likes General Mills. His charitable trust has owned the stock for some time now. The company has proved itself to be both a great innovator and marketer, there’s an extensive cost-cutting program underway to free up cash in the balance sheet, and investors should reap the rewards of consistent, solid earnings going forward. Still, that doesn’t mean the stock is a buy at its present price.

In fact, General Mills doesn’t work at $52.61 for a number of reasons. Technicians, or traders who use stock charts to predict future performance, say that GIS’s resistance level is between $55 and $57. That is the point at which exhausted buyers give way to sellers. Whether you look at the weekly chart’s downtrend line and 200-day moving average, the baseline of General Mills’ cloud chart or use Fibonacci numbers to predict a top, all indicators point to a high of $57. As a result, the chartists don’t see much upside for the stock. (Watch the video for more technical analysis of General Mills.)

Cramer has his own case for being wary. General Mills missed its quarterly earnings estimates last time around by a full 7 cents a share. While he called the quarter “an aberration,” it still came barely a month after management claimed that business was inline with analysts’ expectations. For these reasons, Cramer wants to wait for a pullback before buying the stock.

What’s the right price to buy in? Cramer likes the entry point that the charts suggest: between $48 and $50. At the same time that General Mills has resistance levels that could cap the stock, technicians also point to signs of support – the uptrend line from March’s lows, the bottom of the cloud chart and TD Setup counts – that should create a range in which the stock will trade. Those TD Setup counts show that selling in GIS has previously stopped at a low of $48.02, while the uptrend line puts in a floor at $50.50. So investors should be able to buy within those two points and ride the stock higher.

“Above that level,” Cramer said, “I think you’re paying too much.”

Cramer's charitable trust owns General Mills.

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