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Green Mountain Coffee single-serve K-Cups are pictured in New York, May 3, 2012. The company's management is quickly losing credibility with Wall Street after it badly missed sales estimates for the second time in three quarters, wiping out close to half of its market value. (BRENDAN MCDERMID/REUTERS)
Green Mountain Coffee single-serve K-Cups are pictured in New York, May 3, 2012. The company's management is quickly losing credibility with Wall Street after it badly missed sales estimates for the second time in three quarters, wiping out close to half of its market value. (BRENDAN MCDERMID/REUTERS)

Schizas’ Mailbag

Green Mountain Coffee story worthy of a movie Add to ...

Hello Lou,

I’m wondering what your take is on Green Mountain Coffee Roasters after its 13 per cent pop on September 7.

Does this stock have the momentum to go higher going forward, or should I wait for a pull back?

Thanks for your feedback,

Mario

Hey Mario,

Thanks for the assignment. The back-story on Green Mountain Coffee Inc. reads like a detective novel. There are lawsuits, allegations of aggressive accounting, hedge fund managers strapping on short positions and bragging about it, patents close to expiration and board members having to sell stock in the company during a quiet period to cover margin calls. I can’t wait for the movie! A thorough examination of the charts will help decide if the potential rewards justify the risk with this badly beaten bean baker.

More Related to this Story

The three-year chart outlines the selling pressure that has gripped the stock since late September of 2011. The MACD and RSI both signalled the shift in momentum towards selling in mid-September, 2011 as the shares hit an all-time high over $110.00. What is also evident is the breach of support along the 50-day moving average in late September, 2011. By mid October, 2011 gasoline was thrown on the fire as hedge fund manager David Einhorn announced his concerns about accounting practices and sales projections.

The chart does indicate that there have been opportunities to generate trading profits from oversold and overbought positions but that presumes that you have the skills to do so effectively and efficiently. The MACD and RSI have provided good indicators of entry and exit points over the last year. Given the aggressive rise off the 52-week low at $17.11 on July 23, 2012 and the resistance in the $33.00 range I would expect a pullback from these levels.

The six-month chart illustrates the buy signals generated by the MACD and RSI as the stock came off the rock bottom in late July of 2012. If the shares can break above resistance at $33.00 there isn’t much standing in the way until it hits resistance at $40.00 along the 200-day moving average. As mentioned, I would expect a bit of a pullback so watch the signal generators for a good entry point. GMCR is setting up a trade but I don’t expect a return to $110.00 in the near future.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it to lschizas@globeandmail.com.

 

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