Coinstar (NASDAQ:CSTR) operates self-service interactive kiosks. The two main businesses are Redbox DVD rentals and Coinstar coin-counting machines. While there are about 19,000 Coinstar machines in supermarkets, drug stores and the like, the DVD rental business accounts for 70% of revenue (coin-counting is about 17% of revenue).
If we look at the weekly chart going back to 2008, we note two clear technical patterns. One is the uptrending channel (blue lines) and the second one is the horizontal resistance/support line (red).
The horizontal line at $38.50 dates back to May 2008, where it acted as resistance until May 2010. After that, it has held as important support ever since, and in February of this year coincided with the blue uptrending channel. Speaking of the blue channel — note that in early June the stock bounced hard off the lower line and currently resides right in the middle of the channel.
On the daily chart, we note a horizontal resistance/support line dating back to May 2010, which has acted resistance and support several times over the past 12 months and on Wednesday Coinstar again overcame that level with a solid rally higher.
The trade I see setting up here is straightforward: Open long near Wednesday’s close at $58.80 or better with a target at the 2010 highs near $67. Stops can be set at $55.
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