Shares of doughnuts retail chain Krispy Kreme Doughnuts (KKD) have traded in a constructive manner since their August 2014 bottom, and with the recent consolidation period, KKD stock now presents defined risk and reward you can focus on.
On Monday, Krispy Kreme reaffirmed its earnings guidance for the fiscal year 2015 ending February 2015. The company also announced its guidance for fiscal year 2016 of adjusted net income between $55 million and $59 million, or 79 to 85 cents per share of KKD stock. Furthermore, Krispy Kreme appointed Price Cooper as its new chief financial officer, effective early April 2015.
Although KKD stock didn’t make any major leaps Monday on the back of this news, the technical picture on both the near and longer-term charts is solid.
As a side note, unlike many other companies that will report earnings in coming weeks, Krispy Kreme is not scheduled to report until March 12, which should allow the stock to trade somewhat less interrupted until then.
KKD Stock Charts
On the multiyear weekly chart, we see that KKD stock had a sharp run from autumn 2012 into November 2013, which subsequently was followed by a 40% selloff in the following three months. However, this price action was constructive through a longer-term lens, as sharp rallies of this magnitude usually need to retrace anywhere from 30% to 60% to remain sustainable.
Last August, KKD stock then revisited its February 2014 lows and began to rally again. Overall, the price action since early 2014 has been one of consolidation in a defined range, which increasingly looks constructive and speaks to a move higher.
On the daily chart, we see that KKD stock has worked its way higher in a technically sound manner for the past six months or so. After a very narrow trading range from June into early August, Krispy Kreme gapped higher, and by late August, the stock overcame its 100-day simple moving average (blue line). Then by October, KKD had cleared its 200 day moving average (red line) in a better way.
The subsequent rally by early December took the stock into its horizontal resistance line (red dotted line), which marks the highs from March 2014. Because a major resistance line like that often takes time to overcome, KKD stock then took another breather, and on Jan. 6, it bumped into and off its rising 100-day moving average (blue line).
KKD stock now has two well-defined areas for active investors and traders to focus on.
First, a move past the $20 level could quickly move this stock back toward the red dotted line around the $21 area, which if overcome could then open the stock up toward the $22-$22.50 area in the near term. On the downside, any break below $18.25 — particularly on a daily closing basis — would call off the near-term bullish setup but likely wouldn’t alter the bullish bigger picture too much.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
