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Today’s Trading Edge: Monsanto shares rally on Bayer offer and price forms Gartley pattern

Posted by WorldWideMarkets . on May 23, 2016 9:12:19 PM


Monsanto Company (MON) shares rallied over 4% to $105.99, well off the session highs after Bayer made an all-cash offer of $122/share to acquire the company. The total deal would be valued at $62 billion and the combination is expected to provide Bayer's shareholders with accretion to core EPS by a mid-single-digit percentage in the first full year after closing and a double-digit percentage thereafter. Initially, Bayer expects annual earnings contributions from total synergies of approximately $1.5 billion after year three plus additional integrated offer benefits in future years.

Monsanto may request a higher multiple because their outlook beyond 2020 is strong.  It is possible that we could see Bayer make a higher offer.  If approved, this would be the largest agriculture-related acquisition ever.

Price action on the MON daily chart shows that price is tentatively forming a bearish Gartley pattern.  Point D is targeted with the 70.7% Fibonacci retracement level of the X to A move and the 141.4% Fibonacci expansion level of the B to C leg.  If the bearish move continues, we could see price find support from the century mark.  Ultimately, we could see Monsanto shares firm up and target the $120 region.      

If the bullish move stalls key support will come from the 200-Day SMA, which currently trades at $92.65. 

The Trade: Buy MON at $101.50, with a stop loss at $97.50 and a take profit at $113.50.  The Risk/Reward Ratio is 1:3

Topics: US Stock Market, US Stocks, US equities


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