Yesterday we looked at Green Mountain (GMCR). Today we’re taking another look. Let it ride…with a stop. (December 04, 2012)
GMCR
I’m Dan Fitzpatrick at StockMarketMentor.com on Tuesday, December 4th. I want to go back to Green Mountain Coffee Roasters ( $GMCR Green Mountain Coffee Roasters Inc ); I talked about that yesterday, about this squeeze, a really, really powerful volatility squeeze. One thing you want to take a look at is here, 14 percent short interest or that’s the short interest ratio. Bottom line is there’s a lot of days that this stocks is going to have to trade higher if the shorts are going to cover. So the bottom line is we’ve got, I think I just said two bottom lines; Green Mountain ( $GMCR Green Mountain Coffee Roasters Inc ) just continues to run higher, this is what short squeezes look like. Now you look at the weekly chart, you can see the stock was in a pretty significant downtrend, they’ve started to move higher, but this is the chart that really tells the tale. Definitively, decisively above the 200-day moving average. Today’s range, much higher than usual, wider than usual volume, higher than average, not as much as a few days ago when we got this big move here. But if you recall I said yesterday that when a stock trades outside the upper band like this, that’s a real sign of strength, I mean it closed one, two, three, four days outside the band before today and my suggestion was that you consider two alternatives, maybe I gave you three, but I know I gave you these two; you take a little bit of profits, or in order to let the stock run, and this is the one that’s important, in order to let the stock run you use the prior days intraday low as you’re reference for demand. We have higher intraday lows here, this was different, we’re not talking about that, I’m talking about this, this is the low, then yesterday we had a higher intraday low, if you were setting your stop, say below this intraday low you’d have not been stopped out, you would, however, have been protecting your profits incase Green Mountain ( $GMCR Green Mountain Coffee Roasters Inc ) reversed, you’d be out of the trade with still a really, really nice profit. But as it is you kept your stop, you let your profits run. So now what I would do? I would use either today’s intraday low of $37.46 as a reference point, or perhaps even where the stock opened. Frankly, it doesn’t really matter, just have a stop in place; if you set it too tight you’re almost assuredly going to get stopped out because that’s what happens, so if you set it really super tight I think it’s best to, instead, just sell some of your position and then set up a little bit looser stop on the rest of it, but you want to let this stock run as far as its going to run, you know we zoom way out here and you can see this is a multi, multi, multi, month base, it’s just coming out of that base, really, really high short interest, so there’s a lot of folks that are freaked out now, they were actually anticipating this kind of move, they didn’t get it, instead they’re getting this kind of move, you’re going to continue to see shorts running for cover, they’re going to be buying this stock and buying it and buying it and trying to get out of it. What you’re going to wind up seeing, that’s going to mark the top, is this; at some point your going to see the stock, you know, open up right here, wherever, it’s going to trade up really, really high during the day and then, on that same day, it’s also going to trade back down, either close right near where it opened, perhaps lower. But what we really are going to want to see, in order to tell us that this is a reversal, is, we’re going to see a gap up, we’re going to see a big move higher, I mean a noticeable move higher, but not a close near the top of the range, which is what we got on these two days. Instead we will see it close well off the top of the range, probably near the bottom of the daily range, and also, this is really important because it’s part of the deal, you’re going to see a big spike in volume, big, big, big spike in volume. So I want you to look for that stuff as a sign that Green Mountain ( $GMCR Green Mountain Coffee Roasters Inc ) is going to reverse because the shorts are done covering. But for now I think the best way to do it is just protect profits, let this puppy run, if you really need to set a very, very tight stop don’t do it, instead to sell some of your stock and then set a looser stop so you can let the rest of it run. Anyway, I hope this helps. Members, Strategy Session next. Free Chart