Green Mountain Coffee Roasters (GMCR) – What do you do NOW?

Sometimes individual stock plays are campaigns.  If you are long GMCR, this may have become a campaign, in terms of what to do with the position.  Do you average down?  Sell?  Hold the position until you get your money back.

Like an army general in the field of battle directing your troops, an investor can make intra day investment decisions that can help their overall financial position even when a big loss occurs.

By looking at our model price chart, you can at least see the field of battle.

Here is the Model Price chart of GMCR as of last night;

GMCR with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of GMCR subsequent to this post will be maintained on Facebook, here.

Long term Model Pice chart

GMCR was updated last night with new financials.  So you are dealing with new information that will give you confidence in strategizing your new plan.

First, some quick observations:

1.  Even in the crash of 2008, GMCR has not traded below EBV+3 as our long-term chart illustrates.

2.  The company is profitable.  In the coming days we will see how the analysts’ will react with their earnings estimates.  This will obviously affect model price, however the market seems to have discounted the worst.  (Just as the market was discounting the best in GMCR, trading substantially above our computed model price.)

3.  The company is solvent.  We will add this feature on our charts, but we can tell you GMCR has a “solvency ratio” of 1.85, as at March 31, 2012, which makes it “Super Solvent” according to our graph.  (See Key Concepts)  Therefore the company will still be around for a while.

More detailed observations:

1.  The red line EBV+3, on our chart, is $29.68.  This is your resistance.  In other words, GMCR will not go above this line anytime soon.  If you were inclined to sell your position, this would be a great opportunity to do so.

2.  The next line EBV+2, on our chart, is $21.50.  This is your support.  In other words, GMCR could move lower in price.  This is your risk, between the current close of $25.87 and EBV+2 or $21.50.

3.  GMCR can dance between support and resistance without any apparent reason until the stock stabilizes.  If and when support and resistance lines are broken, then obviously this will convey new information to the trader on “new” support and resistance lines or EBVs.

So there you have it, the battle plan.  Whether you are using GMCR stock itself, or option strategies at least Model Price can give you specific defined price boundaries to aid you in the execution of your strategies.  Of course GMCR stock price can do anything at any time as we just witnessed yesterday.  This is a game of probabilities.  Some probabilities are higher than others however; we think ours is the most probable.

See what happens.

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