ADM – A Case Study in Technical Analysis
Archer Daniels Midland is a large U.S. based agricultural products company that buys, processes, and sells crops like corn, wheat and soybeans. It trades on the NYSE under the ticker symbol “ADM”.
Following COVID-19, ADM rose from a low of $25 to a peak of $90 in late 2022 before it started unravelling due to internal issues related to its financials as evidenced from the price chart below. The fact that this was a company (and not an industry related) issue is confirmed by a comparison of its price performance vs the agricultural commodity index DBA in the box below the price chart showing material underperformance.
Prices moved lower until the end of 2024, when it gapped below its 200-day moving average in early 2024, before bottoming out at $40 in early April 2025. A lack of confidence triggered by corporate malfeasance, among other things, led to this stock’s underperformance in the market.
Clues to what could be next for ADM can be surmised by a technical analysis of the weekly chart of ADM that brings out the following observations:
- Price made a high of $90 in April 2022 followed by a retest of this high in October 2023. This was not confirmed by the 9-period RSI, shown in the box above the price chart. This is referred to in technical analysis as a negative divergence of RSI with price. A double top had formed by the two highs at $90, as shown in the price chart.
- Price then broke the neckline at $65 by gapping below the 200-day moving average and subsequently moved lower.
- On the basis of a double top at $90, a break of the neckline at $65 allows the calculation of a projected value for the low based on the price differential from the top to the neckline. In this case, the projected low turns out to be at $40 ($90 – $65 = $25; $65 – $25 = $40).
- Deducting a value of $25 from the neckline at $65 results in a projected low of $40, which was indeed reached on April 7, 2025.
With the downside target having been met, the price has since recovered and is currently testing the 50-day moving average at $52.82. This has been accompanied by a surge in relative strength, which now stands comfortably at around 63 for the first time since July 2024. A successful close over the 50-day MA would result in a rally up to the 200-day MA at $65.29. A further move higher would require a break of the downtrend line shown in the price chart in blue at around $55. It would also depend on the financial results from the next quarter (Aug 5, 2025). ADM’s management need to show that they have overcome prior issues related to financial irregularities and have firmly placed the company on a sustainable path to recovery.
Assuming a low of $40 is in place, what are the possible ways to participate in a rally to the 200 day MA at $65?
- On a break of the downtrend line, go long ADM stock with a stop below the trend line. The rationale here is that the break is negated if prices settle below the trend line.
- With implied volatility of ADM in the 18th percentile, purchasing calls for near term expiry at a strike of $55 to take advantage of the prevailing low vol environment. For instance, the July $55call (0.29 delta) closed last night at 65 cents with 25 days to expiry. This could be a low-cost way to play for a $10 upside ahead of the August earnings report.
This illustration is for educative purposes only. If you have any questions or seek clarification please feel free to contact me at info@skmarketisghts.com
Sowmi Krishnamurthy CMT
SK Market Insights Ltd
