Whipping Up a Buy Setup in Green Mountain Coffee Roasters

 | Jun 30, 2013 | 5:00 PM EDT
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I spy a trend trade setup in Green Mountain Coffee Roasters (GMCR).

There are a couple of technical aspects I like about this stock. First, the Green Mountain's price is above both the 50- and 200-day simple moving averages -- and, second, the stock is sporting a generally bullish pattern of higher highs and lows. So let's turn to the setup, which is what I call a "Fibonacci price cluster."

A cluster is defined as the coincidence of three or more price relationships within a relatively tight range -- and, for Green Mountain, this price cluster comes in between $70.33 and $71.35. The 0.382 retracement of one price swing appears within this area, as does the 1.618 extension of another. Also present are two 100% projections of prior declines.

Green Mountain Coffee Roasters (GMCR) -- Daily
Source: Dynamic Trader

I've projected those two prior declines from the most recent June 19 high -- and I have labeled those pullbacks on the chart above. As you'll notice, they were similar to one another in price: One was an $11.82 slide, while the other took the stock down $12.35. The most recent swing down, meanwhile, totaled a similar $11.45. I like this similarity very much, as these "symmetry" projections are a key ingredient in my trend trade setups. They help to identify key areas for entries in a stock in the direction of the overall trend.

In any case, so far Green Mountain is holding above that key zone. As long as it continues to do so, I'll continue to like the buy side here.

Risk on this setup can be defined below the $69.35 swing low. If the price holds above the recent low of $71.50, the initial upside target will come in at $86.06, with a second target at $90.03. Guidelines on entering the stock via "triggers" can be found here.

I will consider myself wrong if the stock violates the $69.35 swing low.

For more information on trade triggers, please refer here

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volatility is quite low here, and we could see some downsides here in the short term. ...



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