New Age Beverages Breaks Out From Trendline Resistance

Bullish Call Option Buying Activity Sends Shares Higher

Shares of New Age Beverages Corporation (NBEV) extended their rally by 5% in early trading on Tuesday. In the options market, buyers picked up out-of-the-money Feb. 7 call options with $7.50 and $8.00 strike prices, suggesting that traders see more upside over the next two weeks. The movement also comes as the ICR Conference happens in Florida, where cannabis beverage developments could be announced.

Earlier this month, Northland analysts raised their price target on New Age Beverages from $6.00 to $8.00 per share, saying that the Morinda's 160,000 distribution points could be leveraged to sell other brands in the portfolio. These brands could include cannabidiol (CBD) products that are expected to ship in the near term. The Farm Bill is expected to significantly reduce the "headache" of distributing CBD in the United States.

Roth Capital analysts are also bullish on the stock following the Morinda acquisition with a Buy rating and a price target of $11.00 per share. The analyst suggested that the acquisition will provide instantaneous, unique and worldwide distribution for its current and upcoming brands, adding that the price target does not take into account 2019 revenue synergies from the merger or Morinda's 2020 growth potential.

Chart showing the share price performance of New Age Beverages Corporation (NBEV) 

From a technical standpoint, the stock broke out from trendline resistance at around $7.00 earlier toward R2 resistance at $8.17 on heavier-than-usual volume. The relative strength index (RSI) moved into overbought territory with a reading of 70.81, but the moving average convergence divergence (MACD) experienced a bullish crossover. These indicators suggest that the stock could see some near-term consolidation above the trendline support at $7.00 before another major move higher.

Traders should watch for a some consolidation between $7.00 and $8.17 over the near term. If the stock breaks out from R2 resistance, it could retest prior highs of nearly $10.00. If the stock breaks down from the $7.00 support, it could move lower to retest trendline support at $6.00 or break down further to the 50-day moving average at $5.00 or S1 support at $3.93. Given the many potential catalysts ahead, the bull case appears more likely at the moment.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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