Editor’s Note: We apologize for the late distribution of Beat the Bell this morning. A fine round of applause for our friend “Technical Difficulty.”
Monster Beverage Corp (NASDAQ:MNST) — coming off a beastly rally in the second half of 2014 — are trading higher for 2015, but have come under some pressure as a much-needed consolidation phase set in. However, MNST stock still remains in a good spot, as people still want their caffeine, and as the Monster stock price chart should support at least one more significant rally.
When Monster Beverage reported its first-quarter earnings on May 7, it missed analyst expectations. While sales within the United States still rose, foreign sales on a year-over-year basis fell from $115.8 million to $113 million. Investors were quick to vote with their wallets and let MNST stock tumble.
In the bigger picture, Monster Beverage still is well-supported by its deal with The Coca-Cola Co (NYSE:KO), whereby Coke in 2014 agreed to acquire nearly 17% of Monster for more than $2 billion in cash. Furthermore, Monster is considered by some to be a lifestyle brand for the millennials, the fastest growing group of consumers for caffeinated beverages.
MNST Stock Charts
If we look at the multiyear weekly chart of MNST stock, we see that after being confined by a clear line of resistance from 2012-14, the Coca-Cola stake announcement in August 2014 blasted the stock past this resistance and set a major rally underway that did not end until this May’s earnings report.
While the rally took place in a defined range, it ultimately became too long in the tooth, and the recent price correction has broken the uptrend channel.
Through the medium-term lens, Monster stock now needs to re-establish itself in this uptrend, but the trend remains decidedly higher after the August 2014 breakaway gap. In other words, I need to see better exhaustion selling or a clear bullish reversal on a weekly basis before I would buy Monster shares again as a longer-term growth play.
But I do expect such a move to take place in the not-too-distant future.
Given the somewhat roughed-up medium-term picture of the longer-term chart, my focus for MNST stock for the time being is on the nearer-term time frames.
On the daily chart, we see that with the up-gap from late February, followed by the down-gap after the early May earnings report, MNST stock completed a so-called island top formation (blue box). The price action since early May has been decidedly lower and in a tight trading range, resembling a falling wedge pattern that could have near-term bullish implications.
I am using the 8- and 21-day simple moving averages (blue and yellow lines, respectively) as guidance. In other words, when MNST stock can overcome both of those moving averages and thus also break out of the falling wedge pattern, I suspect shares could regain good upside momentum for a bounce toward the high $130s.
It’s a choppy environment out there for stocks, so we either take very long-term approaches, or use nearer-term measurements to define our risk/reward more clearly.
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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.
