A Momentum Trade Is Setting Up in Keurig Green Mountain (GMCR)

by Serge Berger | May 9, 2014 8:00 am

A Momentum Trade Is Setting Up in Keurig Green Mountain (GMCR)

Specialty coffee company Keurig Green Mountain (GMCR[1]) reported its second-quarter earnings after the bell Wednesday, and a beat of the Street and buyback plans helped GMCR stock race out to an important rally that could have legs.

beatthebell 185x185 A Momentum Trade Is Setting Up in Keurig Green Mountain (GMCR)GMCR earnings came to $162.1 million, up 22%, and on a per-share basis, its $1.08 in EPS easily topped the consensus estimate of 95 cents. Revenues of $1.1 billion also topped the Street’s call of $1.05 billion — that was powered by K-cup sales that improved 13% to $898 million, and sales of brewing machines and accessories that were up 9%.

In the conference call, GMCR announced a new share repurchase program of up to $1 billion that will be good for two years. Furthermore, the company plans on deepening its relationship with J.M. Smucker (SJM[2]) to make and sell its coffee brands in formats compatible with the new Keurig brewing system.

Investors seemed to like the news and bid GMCR stock higher by nearly 13% on the day on a spike in volume in a technically significant move that could keep going.

It is important to note however that as long as the Russell 2000 and the Nasdaq can’t get out of their own way and the Dow Jones Industrial Average and the S&P 500 can’t break to new highs, the odds of single-name stocks showing good follow-through buying after bullish one-day moves remain somewhat below average.

Nevertheless, Keurig’s move on Thursday has put GMCR stock back into a better near-term posture.

GMCR Stock Charts

On the multiyear chart, note that after GMCR stock in February briefly took out its previous all-time high from September 2011, it began to mean-revert lower along with other high-flier and trend-follower stocks that worked so well in 2013.

Unlike some of the social media and biotechnology stocks, however, Keurig (from a technical perspective) found a respectable level to bounce off earlier this week, and this could allow the active trader and investor to play the stock from the long side.

gmcr multi year 300x169 A Momentum Trade Is Setting Up in Keurig Green Mountain (GMCR)
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To put Keurig’s Thursday rally into a little more perspective, note that earlier this week, GMCR stock found support at an area that previously served as resistance, namely the August 2013 highs. Yesterday morning, GMCR gapped up right out of the gates and never looked back, although it did close off the day’s highs and right at its 50-day simple moving average (yellow line).

gmcr daily 300x192 A Momentum Trade Is Setting Up in Keurig Green Mountain (GMCR)
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If and when GMCR stock can overcome Thursday’s intraday highs near $108, the stock could open up toward the $120 area in coming weeks in what would be a classic follow-through momentum trade.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here[4]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. GMCR: http://studio-5.financialcontent.com/investplace/quote?Symbol=GMCR
  2. SJM: http://studio-5.financialcontent.com/investplace/quote?Symbol=SJM
  3. Beat the Bell: https://order.investorplace.com/?sid=FQ8104
  4. Essence of Swing Trading e-book here: http://www2.marketfy.com/l/15492/2013-07-23/55sww

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