Do you ever wish it was possible to own the next Starbucks (NASDAQ:SBUX)? Well, one stock that fits the bill is Luckin Coffee (NASDAQ:LK). And right now, LK stock is brewing nicely on the price chart and readying to be served.
Let me explain.
In the day-to-day goings on of Wall Street, there’s always something meant to distract and keep investors occupied. In much of 2020, that interference has been the coronavirus.
I’m not trying to downplay the disease’s risks, as they’re everywhere. Even Apple (NASDAQ:AAPL), the world’s largest company, warned for its current quarter this week citing the pandemic as the cause for its lower revenue forecast.
Collectively, with the virus’ taking its toll on people, businesses and economies alike, the dangers are pervasive and obviously real.
Luckin’s Case for Investors
That said, China’s Luckin Coffee — an outfit just entering the big leagues of large-cap businesses with market capitalization of $10 billion or more and modeled after industry giant Starbucks — might seem an odd choice for the portfolio. However, that’s just it. “Right now” isn’t tomorrow, and it’s certainly not next week, next month or a year from now.
The thing is, despite the negative impact the coronavirus will undeniably have on Luckin’s immediate financials, the company was doing great. In fact, items such as the company’s ballooning quarterly sales growth is the type of success that’s caught the attention of well-known hedge fund Lone Pine Capital during the fourth quarter. The firm purchased just over 6 million shares at an average price of $25.62.
How’s that for confidence?
In truth, it’s likely the notorious faster-money operator has already hedged or exited its position. Shares did nearly double in price after Lone Pine acquired its stake in Luckin Coffee. And frankly, taking risk off the table can’t be faulted. Nevertheless, looking at the big picture for LK stock, history suggests we will get past today’s coronavirus woes and find other bullish trends and tendencies prevailing for future Luckin investors.
LK Stock Weekly Price Chart
If I sound bullish on Luckin Coffee, there’s good reason for that optimism found on the weekly price chart.
Last month, and after hitting fresh all-time-highs, shares plummeted hard and fast. However, corrections of this kind are par for the road, but particularly so for a growth stock of LK’s caliber. And as the decline was stopped in its tracks by a bullish-looking pattern bottom which successfully challenged key lateral price and Fibonacci support, there is strong evidence Luckin Coffee isn’t finished.
So, this rally out of Luckin’s volatile weekly doji pattern has met resistance at the new base’s 62% resistance level. Shares have pierced the level twice so far with a matching high of $43.18.
It could be a warning. But as a growth stock and recent IPO, the overall price action lends itself to Luckin Coffee building a healthy and common first-stage base which will lead it to new all-time-highs.
Bottom Line of LK Stock
Overall, my advice for the time being is to monitor shares. If shares can hold above the 50% retracement level in the right side of the base, buying shares on a breakout above $43.18 as the 62% is cleared for a third time looks very approachable. That’s particularly true if over the next one to two weeks a handle consolidation can take shape.
Alternatively, and if shares begin to falter, buying on extreme weakness might be watched for a purchase. At the end of the day, should Luckin Coffee move back towards its year-to-date low, investors have the chance to put LK stock in the portfolio near key support that could take the shape of a larger and lasting, well-brewed double-bottom pattern.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits
