This Roaster May be High on Caffeine, or Just Waking Up

Following Technical Analysis can teach you a lot about how a trader must be nimble in their plan. Let’s use Green Mountain Coffee (Ticker GMCR) as an example. Just 2 days ago this stock was in a serious downtrend and with a falling Relative Strength Index (RSI) and a worsening Moving Average Convergence Divergence (MACD) indicator. It had just fallen through the 100 day Simple Moving Average (SMA). The shorts were pressing. you could not get any shares to borrow to short anymore. But it was also right at a previous support level of 33 from March and August 2010. The chart is below.

Then what happened? They blew out earnings expectations and that led to a gap up in price to new highs as shorts covered. Fundamental Analysts will chalk this up as a knock against using technicals. But is it really? I have written here before about Technical Analysis being about points of reflection and not inflection, meaning the signals are used to make you think, not as automatic trade triggers (link below). But at the end of the day yesterday, previous resistance at 37.75 held. I don’t think that was the average of all fundamental valuations for the stock was it?

So what to do now? The candle printed yesterday was a Shooting Star, and it happened on large relative volume. This would lead a technical trader to watch for confirmation of a move down by price going below the 37.30 low for Thursday and then playing it short for a gap fill. The other side of the coin is that this could lead to a break away gap, and new move higher. The jump out of the Bollinger band happened while they were expanding and the MACD has now crossed up. Above 39.35 the technical trader would look to be long. So which is going to happen? I don’t know, but I am ready for either.

Trade’m well.

TA is About Reflection, not Inflection

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Dragonfly Caps Blog