Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is a favorite among traders and the financial media, not to mention among java lovers in the ever-growing coffee culture in the United States. The stock’s volatile swings during the past few years were enough to satisfy even the most voracious appetite for volatility. In recent months, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has settled into a consolidation phase, but now looks poised for a breakout.
Before looking at Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s chart, I’d like to note the dramatic slide in the price of coffee futures during the past two and a half years. After topping in May 2011, coffee futures have slipped more than 60% and continue to fall.
While there is no direct inverse correlation between the price of coffee futures and the stock of Green Mountain Coffee Roasters, it certainly would be difficult to make the case that lower input costs are hurting the company. So, from a fundamental point of view, as I walk through the charts below, keep in mind that lower input costs should be a positive for the stock.
On the logarithmic weekly chart of Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) looking back to 2004, there are a few key things to note. (I often use logarithmic charts to look at longer time frames because they help smooth out the chart and typically allow for better technical analysis.)
First, note that, remarkably, the stock held its major support line during its significant 2011-2012 sell-off.
Next, note that the steep rally from April to September of 2011 was a classic overshooting, which, as is often the case, led to a dramatic sell-off. While the rally off the summer 2012 lows has been steep, it does not yet look like the crazy vertical leap in 2011.
Near-term technical support comes from its 50-day simple moving average, which currently coincides with the uptrend line where the stock again found support in July and August. If Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) drops below the $79.50 area, it will snap major support and likely scare the bulls out of the stock for a lengthier period of time.Given the stock’s sometimes volatile nature, the breakout from this bull flag formation may not happen in one clean swoop, but rather could take a couple of days of backing and filling, confusing traders before taking off.
Recommended Trade Setup:
— Buy GMCR at the market price
— Set stop-loss at $84
— Set initial price target at $93 for a potential 7% gain in 3-6 weeks
Note: Learn more about the strategies Serge Berger uses to create a profit in the market every day. Download his trading plan in the “Essence of Swing Trading” eBook by clicking here.
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