Shares of bakery cafes operator Panera Bread Co (NASDAQ:PNRA) exploded higher Thursday on the back of news that PNRA initiated a major share-buyback program. In addition to what this means for people already long Panera stock, this move just provided active investors and traders an opportunity to hop on the back of renewed upside momentum in PNRA.
Which is nice considering Panera Bread Co has lacked any real multimonth directional movement since last autumn.
Specifically, Panera Bread announced late Wednesday that it will borrow $500 million to increase its share buyback program to $750 million worth of PNRA stock. The moved seemed to be at least sparked by involvement of activist hedge fund Luxor Capital Group L.P.
In addition to the share buybacks, Panera also said it will refranchise and/or sell another 73 stores.
The news was taken well by investors, to say the least, who let PNRA soar right out of the gate Thursday, to a final tune of 11.6%.
Big one-day rallies such as what we saw in PNRA stock on Thursday can be real near- to intermediate-term game changers for a stock, but to gain better context around the importance of the price action, one needs to zoom out on the charts and see how the price action fits into the bigger picture.
PNRA Stock Charts
On the weekly multiyear chart below, we see that PNRA stock since June 2013 has formed a big consolidation period — one not entirely dissimilar to its price movement from 2006 until 2009, where the stock consolidated its sharp rally from the prior years.
From this angle, we also see that Thursday’s rally has bumped Panera shares right back into the diagonal resistance line for a third time since May 2013 (blue bubbles), and with upside momentum curling back up, the chances are good that an eventual breakout move higher takes place within the next few weeks (or months).
Zooming in on the daily chart, we see that Thursday’s big rally came on a notable pop in volume and that the price gapped right above a near-term horizontal resistance line around $167 and above the prior year-to-date highs from February. At the same time, the Bollinger Bands (blue lines), which traded fairly tightly together in recent weeks, widened significantly on Thursday, which of course is just a reflection of the big jump in price.
While PNRA stock may be near-term overbought after yesterday’s rally, the move stands a good chance of continuing higher after a pause.
Active traders could look to buy PNRA stock on a push above $185.50, while more tactical traders and investors may want to wait for the stock to consolidate a few days/weeks before resuming the climb higher and toward the $200 area.
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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.
