Knowing what not to invest in is often more important than knowing what investors should invest in. Packaged food companies are showing more sluggishness than a 1980 Yugo recently. We recommend staying out of them. However, we make money off of puts about as often as we do from calls so there may still be opportunities to profit. As of now, we are short term bearish on packaged food companies (short term meaning 2-6 months).

Let's look at some fundamentals here:

• Energy prices and rising packaging costs may continue to squeeze profits
• After several mergers since 2000, there is little room for further acquisitions
• A 2% decline in operating earnings is expected for 2005 for the industry group

Technicals: PCFD (S&P Packed Foods Index)

• PCFD moved the 200-day line (green) not long ago
• PCFD is seeing resistance at the 50-day line (purple), which in the past has been short-term bearish
• PCFD has continued to see decreasing relative strength despite a somewhat strong market

S&P Packaged Food Index Chart - Weekly

Key Sector Players

Conagra Foods (CAG)

Kellogg (K)

In conclusion, there isn't much to say here except that there is more than one reason to stay away from packaged food companies, and it has nothing to do with preservatives. It has to do with money.

Price Headley is the founder and chief analyst of BigTrends.com.