Thursday, September 29, 2011

GMCR Watch

Green Mountain Coffee Roasters Inc. (GMCR) has been on a roll since February, gaining 205% at the high on Sept. 20.

sym phase trend adx   200/50 40/10

But even before the peak things had started to get choppy, and today GMCR dropped below the 20-day Donchian price channel into bear phase for the second time since the rise began.

The intraday drop has been sharp today, 8% from the open with no news to prompt the day's rout.

GMCR's chart is a textbook study in ambiguity.

The phase change comes amid a sideways trend that has held force since late July. The top boundary has been touched three times, in the $111.42-$115.98 range, and there has been a very sloppy lower boundary, that began at $89.01 and was touched once more, a breakdown to $83.50.

That's a wide range, around 30% of the current price, indicating a massive tug-of-war between bargain hunters who are bullish on GMCR and shareholders who want to take the money and run.

The chart shows higher high, lower low, and two moderately higher highs.

The trader of pessimistic temperament will focus on today's sharp drop and the new bear phase to justify a bearish stance (although perhaps waiting for an upward retracement).

The optimistic trader will note that the price is in the middle of the sideways range, concluding that there is no reason to think that the range has been disrupted.

The pessimist will buy puts, and the optimist will open an iron condor, perhaps structured to be profitable from $115 down to $85.

The cautious trader, of course, will simply stay on the sidelines, and thinking about my own account, that may be the best course.

Analysts generally rate GMCR as neutral these days, now that the upward rush is over. The second quarter return on equity is a respectable 18%, with a debt/equity ratio of 0.23 -- a bit too high for a growth stock in my book, but not too awful.

Of course, those numbers came in before the price rise became choppy, and that makes third-quarter earnings, on Oct. 26 a make-or-break event.

GMCR has 81% institutional ownership, and the wide-swinging sidways price action since late July makes me wonder whether some of those institutional owners aren't getting cold feet and reducing their exposure.


  • phase: 20-day price channel phase, with green for bull trend, red for bear trend and yellow for neutral trend.
  • trend: Price direction, green for higher highs and higher lows, red for lower highs and lower lows, yellow for neither.
  • adx: Average directional index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 25 and up but below 40, magenta (light purple) for 20 and up but below 25, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, magenta for sunset on the horizon and brown for the earth.)
  • 200/50: The moving average cross, green for the 50-day ma above the 200, red for below and yellow for closely aligned.
  • 40/10: The moving average cross, green for the 10-day ma above the 40, red for below and yellow for closely aligned.

About my trading methods

Read a detailed explanation of my analysis method, including trading rules.


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

The trader’s greatest sin is inaction. Sleeper, awake! Seize the Nietzchean moment. Roll out of bed and trade.

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