Continuation from yesterday……….This caution would have been well justified. Keurig’s stock price topped out in August of 2011 at a little over $100 a share and then distributed for a few weeks before starting a major leg down. An investor in the stock should have liquidated his long position and gone short at $80 a share. It was at that point that the company’s stock price broke below its previous low, suggesting further downside. The stock price continued to collapse until it hit bottom in July of 2012 at $17.50 a share. Delivering a gut-wrenching 84% loss in the process.
GMCR Trade #7: Exit our long position at $80 a share while going short at the same price/time. Realized profit from the previous entry point…… $70 or 700%. Overall profit $78.25 or 31,200%
By mid 2012 and after its 84% collapse, Keurig’s valuation levels were, once again, more than reasonable. If anything, the stock was selling at a substantial discount considering its future growth potential. In addition, the stock trended down for exactly one year. This represents an important stock market cycle. Finally, given the extent of the collapse, one year time cycle and general undervaluation, an analyst following the stock should have been looking for trend reversal. This reversal was confirmed in November of 2012 when the stock price broke above its previous high at around $33 a share. A trader should have covered his short position and gone long at that point in time.
GMCR Trade #8: Cover our short position at $33 a share and go long at the same time. Realized profit from the previous entry point…….$47 or 59%. Overall profit $125.25 or 50,000%.
After hitting its bottom, Keurig’s stock price realigned with the overall market and staged a massive rally to $125 a share. Which brings us to today (8/14/2014 – $114) and the overall gain of $206.25 or 82,400%. Making this stock an 824 bagger or almost doubling our original gain.
Today, Keurig’s stock price finds itself at the same juncture it was back in 2007 and 2011. While the company is doing very well, its valuation levels are once again out of sync with reality. What’s more, the overall stock market is in its own overvaluation bubble and on the verge of another bear leg. In fact, any investor in Keurig should be following and watching the stock very carefully here. Looking for various signs that the top is in. Further, said investors should consider exiting the stock and going short once again as soon as the previous low of $90 is broken on the downside. Riding this stock down again before reversing course and going long at the next bear market bottom.
Before we analyze Apple’s trading history, let’s take a quick look at some of the trading rules we must comply with.
To Be Continued Tomorrow……..
