Over the past few weeks, coffee and coffee-related stocks have been surging on a huge increase in volume. While there could be many different fundamental drivers for this move, one of the benefits to technical analysis is that the trend is always revealed on a chart regardless of what is driving it. While some trends may be more difficult to interpret, a chart always presents an objective view. It is up to the trader to interpret the chart and develop a methodology to weigh his or risk and define objectives. While fundamentals are important and ultimately drive the markets over the long term, the shorter the time frame, the more price movement is tied to the emotions of fear and greed in market participants. In looking at the charts for these coffee stocks, something is driving market participants to buy hand over fist. Whether it is directly tied to some of the recent earnings releases or some other macroeconomic driver, the simple fact is that the charts are showing a startling increase in volume and price movement. (For more, see Basics Of Technical Analysis.)

For example, in the chart for Starbucks Corporation (Nasdaq:SBUX) it's clear that the bulls have been sending prices higher. There could be a myriad of reasons for this, from confidence in management's new plans, value players looking to get into a great American company, or even short sellers covering. Regardless of the driver, the chart reveals a change in character by starting to set higher highs and lows, and an increase in volume on positive days. SBUX cleared a larger consolidation in March and after trading sideways for a month, continued its move higher. While SBUX may be a little ahead of itself (showing a MACD divergence), it is starting to look more bullish long term, by trading back above the 200-day moving average. This area may serve as support moving forward.

Source: StockCharts.com

Green Mountain Coffee Roasters (Nasdaq:GMCR) is another example of a coffee-related stock seeing a surge in interest. GMCR broke above a long-term base in March and continued to trend higher, hitting all-time highs along the way. Last week, things really got interesting on a huge gap higher following an earnings report. It will be interesting to see if GMCR comes back to fill any portion of or the entire gap it left behind. A failure to fill the gap would be considered bullish, especially after the strong trend it has already experienced.

Source: StockCharts.com

Caribou Coffee Company (Nasdaq:CBOU) is another example of a coffee stock gone wild. It cleared a several-month long base in March and has been surging higher from that point. The MACD histogram just confirmed that move higher with new highs in the indicator showing momentum is still quite strong.

Source: StockCharts.com

There is probably no better example of how crazy things have gotten with coffee stocks recently than Diedrich Coffee (Nasdaq:DDRX). This stock has gained well over a 1000% from where it broke out in March. The surge in both volume and price over the past few weeks has been quite remarkable, and it will be interesting to see how deep the pullback will be once it begins to correct.

Source: StockCharts.com

Coffee Holding Company (AMEX:JVA) is another smaller coffee company seeing the same surge in interest. The strongest move in JVA really has come on in just the past few sessions and could be just beginning. This has a very low average trading volume and has seen a huge relative volume increase over the past few sessions. It's always interesting how money flows into the sector and finds its way to other members of the group. Another stock displaying a strong run up on increasing volume is Peet's Coffee and Tea (Nasdaq:PEET).

Source: StockCharts.com

Bottom Line
While coffee related-stocks are certainly extended right now, the huge surge in volume is hinting at more than just a short squeeze. Usually a volume increase this large suggests participation from institutional money. Technical analysis can be used to discern the trend, regardless of what is ultimately driving prices higher. All of these stocks either have the 50-day moving average back above the 200-day moving average, or are very close to it. This is commonly referred to as a golden cross and can be considered bullish. Will these stocks reverse and head lower, or are they experiencing an important trend change and thus, headed higher. Tune in to the charts to find out.

At the time of writing, Joey Fundora does not own any of the stocks listed in this article.

Related Articles
  1. Chart Advisor

    3 Ways to Trade the Rising Volatility

    With volatility increasing in the markets, many are turning to these three volatility-capturing exchange-traded products.
  2. Chart Advisor

    Big Double Top Patterns On the Verge of Breaking

    These stocks have created big double top chart patterns, and are on the verge of breaking the patterns to the downside--a bearish signal.
  3. Chart Advisor

    Gold Struggles to Climb Higher and May Fall Soon

    Traders will be watching the price of gold over the coming weeks. We'll take a look at how a couple major moving averages are suggesting that the next move could be lower.
  4. Technical Indicators

    Use Market Volume Data to Determine a Bottom

    Market bottoms often carve out classic volume patterns that let observant traders make fast and accurate calls.
  5. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  6. Trading Strategies

    Who Actually Trades or Invests In Penny Stocks?

    Although penny stocks are highly speculative, millions of people trade them daily. Here are 10 different types who do.
  7. Chart Advisor

    4 Stocks Still Flashing Buy Signals

    In the midst of volatility and a big market sell-off last week, these stocks are flashing buy signals.
  8. Technical Indicators

    Understanding Trend Analysis

    Trend analysis is the use of past performance to predict future price movement of a security.
  9. Trading Strategies

    How To Buy Penny Stocks (While Avoiding Scammers)

    Penny stocks are risky business. If want to trade in them, here's how to preserve your trading capital and even score the occasional winner.
  10. Chart Advisor

    Stocks to Short...When the Dust Settles

    Four short trades to consider, but not quite yet. Let the dust settle and wait for a pullback to resistance for a higher probability trade.
RELATED TERMS
  1. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  2. Indicator

    Indicators are statistics used to measure current conditions ...
  3. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  4. Mass Index

    A form of technical analysis that looks at the range between ...
  5. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  6. On-Balance Volume (OBV)

    A momentum indicator that uses volume flow to predict changes ...
RELATED FAQS
  1. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  2. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  3. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  4. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  5. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>
  6. What are the alert zones in a Fibonacci retracement?

    The most commonly used Fibonacci retracement alert levels are at 38.2% and 61.8%. A 50% retracement level is also commonly ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!