Specialty coffee company Keurig Green Mountain (GMCR) on Friday announced a multiyear licensing deal with Kraft (KRFT), which led to a big rally in GMCR stock. Of interest to us is that the rally was significant through a trading lens, and it could offer investors and traders an opportunity to hop on renewed upside momentum.
Friday’s new multiyear deal will see Keurig make single-serving pods for Kraft that will work in Keurig brewing systems. This is a notable development, as last we heard between the two companies was that Kraft would be making its own K-cup portions but not license them to Keurig Green Mountain.
GMCR Stock Charts
When I last discussed the charts of GMCR stock on May 9, the company had just announced better-than-expected earnings, as well as a deeper relationship with J.M. Smucker (SJM). I highlighted the bullish setup that was developing in GMCR stock and called for a multiweek price target near the $120 area, which the stock reached just three days later.
For a little perspective, let’s look at the below multiyear weekly chart of the stock.
The rally in May established GMCR above its prior all-time highs from 2011, but for the ensuing months, Keurig stock then settled into another consolidation phase. Last Friday’s rally then broke GMCR stock past the year-to-date resistance line and to fresh all-time highs, while leaving behind a bullish candle on the weekly chart.
Momentum, as represented by the relative strength index (RSI), is once again curling up. But unlike price, it has yet to make new highs and thus still has to confirm the rally. The bears will point to this so-called negative divergence (which coincidentally or not, we are currently also seeing show up in many key broader market sectors).
On the daily chart, note that last Friday’s rally came on an up-gap right at the open and that the stock never looked back for the rest of the session. Like any good breakaway gap rally, GMCR stock also had a big spike in volume on Friday, as it pushed the stock past a resistance zone between $124 and $128.
Depending on one’s time frame, active investors now can either buy Keurig stock on a break past Friday’s highs for a move into the mid to high $140s, or allow GMCR to consolidate for a few days/weeks — then, once it begins to move higher again, jump on board for that move into the mid- to high $140s.
For risk management purposes, any sharp bearish reversal in GMCR stock should be respected as it could mean last Friday’s breakout actually is a fake.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.