Continuation from yesterday…….
That is exactly what happened in August of 2001 when Keurig’s stock broke below its lower low at around $2.50 a share and headed lower. At that point, any investor who was watching the stock should have A. Sold his holding and B. Gone short. The overall probability of a significant stock decline was too great not to do so. After all, technical analysis was confirming the move.
GMCR Trade #1: Sell and go short at $2.50 a share. Realized profit from the previous entry point….. $2.25 a share or 900%.
As the chart above illustrates, Keurig’s stock price proceeded to bottom out in October of 2002 at around $1.00 a share. Around the same time the Dow hit a low point for its 2000-2002 bear leg. An analyst familiar with the overall mathematical composition of the stock market would be aware of the fact and would be, once again, watching the stock price very carefully for any sign of the bottom and the subsequent trend reversal. Ready to cover and go long at a moment’s notice. And indeed, such a confirmation arrived in March of 2003 when the company’s stock price pushed above its previous high at $1.25 a share.
GMCR Trade #2: Cover our short position at $1.25 a share and go long. Realized profit from the previous entry point….. $1.25 or 50%. Overall profit $3.50 or 1,300%
What followed was an uninterrupted bull market in Keurig’s share price between March of 2003 and December of 2007. During this time the company’s share price appreciated from $1.25 to approximately $9 a share. And that’s where it gets interesting. An investor working with the overall mathematical and cyclical composition of the stock market would be aware of the 5-Year bull cycle terminating in the late 2007 and an impending secular bear market mid cycle correction. Similar to those in 1907-1908, 1941-1942 and 1972-1974. In other words, with the fundamental analysis flashing signs of general stock market overvaluation and with the mathematical work suggesting a deep decline, it was highly probable that Keurig’s stock price was about to go through another correction.
To Be Continued Tomorrow……
