Editor’s note: Serge Berger, the head trader and investment strategist for The Steady Trader, will be providing the Trade of the Day until Sam Collins returns on July 25.
Cheesecake Factory (NASDAQ:CAKE) – This company operates about 160 full-service dining restaurants. Its focus on high quality at affordable prices is a welcome relief for restaurant goers, and coupled with great management execution, continues to make this company a success story. But before we get to the charts, it is important to note that the company is scheduled to announce its second-quarter earnings today after the close.
On the five-year weekly chart, note the steep but orderly incline over the past two years. In June, the stock tested the lower uptrend line, which coincided with the 200-day simple moving average, and is now attacking the highs from December 2010.
On the daily chart looking back to August 2010, we see the stochastics have come out of overbought territory, possibly giving the stock room to run higher. Additionally, volume has picked up recently, which is another positive sign on the margin.
And that brings us to the close-up look at CAKE stock. The daily chart dating back to December 2010 shows the stock breaking out of resistance on July 1, and then after consolidating for two weeks, yesterday again tried to rally and take out the high from July 7.
Although the highs from December 2010 have not yet been surmounted on a closing basis, the more important date to focus on is July 20 (today) when the company is due to announce its earnings.
I do not buy stock immediately ahead of earnings announcements, so I do not want to advocate that here. But barring a very disappointing earnings announcement, the stock should have further upside over coming months with a profit target of around $38 being feasible. Admittedly, much hinges on the earnings announcement, but the charts look solid, and the stock should go higher.
