Professor’s Comments November 21, 2013 GMCR

Posted by OMS  at November 21st, 2013

One of the stocks that I will be watching closely during the next few days is Green Mountain Coffee Roasters, GMCR.

Green Mountain was a MWL favorite earlier this year, as it moved from 40 to over 80.  But during the process, it formed a THT Pattern and started to change direction on 24 September when the PT indicators turned negative. 

I am highlighting Green Mountain today as an example of two things.  The first thing I want to call your attention to is how the stock dropped from 80 to 60 once it turned RED after its THT Pattern.  The decline was textbook classic!  Right out of the Classroom.  This is something that everyone holding high fliers should take note of.  It’s exactly what happened to Apple once its DMI turned Red after it developed a THT pattern.

But my main reason for highlighting GMCR today is because of what happened once it started to decline.  As many of you know, I pay attention to stocks that do what they’re supposed to.  These are the kind of stocks that I like to trade.  So when GMCR Jumped the Ropes to the negative side, it caught my eye.  I then watched it do what I expected after the RJ, namely trade below the 200, form a Blade and pull the 50 down.

Here’s the thing:  As the overall market was busy making new highs, the only thing that GMCR did was form a negative Blade.  And now, its 50 is getting close to crossing below the 200.  If it does, it would put GMCR in a downtrend.

Given that the overall market could be entering a negative correction, if GMCR can’t move higher during a market uptend, I shutter to think of what could happen to it IF the market turns lower.   The P/E is close to 21 which is a bit lower than I would like to see for a short.  But the 20-30 point ‘Stick’ is a lot larger than most stocks I short.

If the market starts to break down in the next few days, GMCR will be high on my list of candidate shorts.

TWID,

h

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
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