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.

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