I always check out the names that pop up on the daily emails from TheStreet's quantitative service. When an upgrade or downgrade catches my attention, I often highlight it on Real Money. Today the service downgraded Shake Shack (SHAK) to a "sell" recommendation. Let's check out two charts.
In this daily bar chart of SHAK, below, we can see that prices peaked back in September. Prices made a low in March with the movement of the broad market but we can also see a retest of the March low in early April. Prices struggle higher into early June, but stopped short of the declining 200-day moving average line. Prices have drifted lower into August and are still below the bearish 200-day line. The On-Balance-Volume (OBV) line has made no upside progress since early May. The Moving Average Convergence Divergence (MACD) oscillator has been hugging the zero line which tells us there is little if any trend strength.
In this daily Point and Figure chart of SHAK, below, we can see that prices have been moving sideways in the $48-$58 area (roughly) for several months (look for the "5" on the chart for May). Notice the concentration of volume in this area -- judging by the volume by price bars on the left scale. Weakness below $49 or $48 is going to put many recent longs "underwater" and this could pressure prices lower.
Bottom line strategy: I rarely ever recommend shorting a stock here on Real Money so what do we do with a sell recommendation? I would avoid the long side of SHAK as the upside seems limited at this juncture in time.
