Given the trauma inflicted in risk assets across the land, you would think shares of Luckin Coffee (NASDAQ:LK) would be getting bashed alongside other momentum stocks. But they’re not! Instead, LK stock has been steadily carving out a trading range.
With earnings on the horizon and market volatility dialed to ten, now is the perfect time to identify the price levels that matter moving forward.
For the uninitiated, Luckin Coffee is a Chinese coffee company that operates over 4,500 stores in China. Since its 2019 IPO, LK stock has exhibited all the volatility you’d expect for a growth stock in its infancy.
It spent the first six months of its public life floundering until last November’s earnings report lit a fire under the stock. Momentum traders have hounded it ever since, and they’ve been rewarded with plenty of fireworks.
LK Stock Charts
Since November’s low, LK stock soared as much as 181% before suffering an almost 50% haircut in January. The past six weeks have seen Luckin shares form a choppy trading range between $34 and $43.
The sideways digestion has made moving averages all but useless. As trend-following indicators, they’re always more effective during trending markets. Note how many times the stock has sliced through the 50-day and 20-day moving averages over the past six weeks. They’re getting no respect whatsoever, so you shouldn’t rely on them for trading signals. Not until a new trend emerges, at least.
With the stock near the south end of its range, I find it hard to have faith in buyers right now. Tack on the souring backdrop for equities and Luckin shares are a tough buy ahead of Wednesday’s report.
Choose Your Side
Typically, when a stock is stuck in a box like this, price followers will wait for a break out before piling in. You could follow suit by marking the high and low of the range – $44 and $34, respectively. A push above the high could signal a run toward the record peak of $51.38 is in the offing. Buying before the upside break is speculative and lacks confirmation.
On the flip side, if you’re looking to bet with bears, I’d wait for a breach of $34, which corresponds with today’s low. Falling below it would tee up a potential fall to the next support zone at $28.
I’d be surprised if we get a break one way or the other before earnings, though. Wednesday’s numbers likely hold the key for which direction Lucking shares finally resolve themselves. Buying beforehand should be considered highly speculative.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!
