Panera Bread Done Rising?

by Serge Berger | July 26, 2013 1:51 am

Serge Berger is the head trader and investment strategist for The Steady Trader[1]. Sign up for his free Weekly Market Outlook Video here[2].

Panera Bread Co. (PNRA[3]) — The bakery-cafe operator rose more than 500% over the course of the past five and a half years. Along the way, it was continually subjected to healthy mean-reversion moves that allowed it to cool off and lessened the danger of a more meaningful collapse.

At some point, however, most stocks settle into better correction patterns that last more than a few weeks, and from the developments that I am spotting on this stock’s multi-year chart, it looks like such a time has come for PNRA.

PNRA Chart
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To smooth out the stock’s long run up I am using a logarithmic chart. In a nutshell, a logarithmic scale displays the value of price using intervals corresponding to orders of magnitude, rather than a standard linear scale.

On a weekly basis, PNRA has now broken below the uptrend line that began in 2008, which is a significant development by all accounts. Given how long the uptrend stayed intact, I don’t expect the stock to deteriorate in one fell swoop. Rather, I would expect plenty of backing and filling, but in a fashion that allow bears to sell the rips.

PNRA Chart
Click to Enlarge

From a closer-up perspective on the daily chart, PNRA has now meaningfully flushed below its 200-day simple moving average (red line) for the first time in roughly 12 months, which coupled with the context of the first chart, paints a weak picture.

In the immediate term, the stock has better lateral support toward the $155 mark, where some sort of a bounce looks probable. But unless PNRA can recover the long-term uptrend, I suspect the trend is lower.

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