Just about a month ago, I discussed a trade in shares of doughnut retail chain Krispy Kreme Doughnuts (NYSE:KKD). KKD stock has since reached my first upside target, and while it remains constructively positioned, an update here is warranted.
While still a few weeks out, it is now important to be aware that Krispy Kreme is scheduled to report its next batch of earnings on March 12. KKD stock has a history of being able to move violently in either direction after its earnings announcements, so for risk management purposes, active investors currently involved in KKD on the long side should consider closing or at least reducing the position into the earnings announcement.
How a trade is managed often can make the difference between steadily winning and losing traders. At least part of good trade management is taking profits along the way, particularly if multiple profit targets for a trade or an investment were determined when the position was initiated, such as I did with KKD stock in January.
KKD Stock Charts
Before looking at the nearer-term picture, let’s view the multiyear weekly chart. Note that KKD stock remains constructively positioned for a push higher. The overshooting rally in October and early November 2013 ultimately led to a near 61.8% (important Fibonacci level) retracement of the entire late 2012-late 2013 rally. The summer 2014 low near $15 thus is of pivotal importance, and any drop below there would put the bigger-picture pattern of KKD stock in doubt.
Looking at the daily chart and referring back to my initial trade idea from Jan. 13, here is what I wrote at the time:
“A move past the $20 level could quickly move this stock back toward the $21 area, which if overcome could then open the stock up toward the $22-$22.50 area in the near term.”
After a little back and forth in recent weeks, KKD stock finally hit the first price target near $21 last Friday and has thus worked its way back to the horizontal resistance area that stretches back to December 2013.
KKD has made a series of higher lows since last summer, but still has to make a higher high, which it would accomplish by overcoming the $21-$21.20 area and working its way into the large down-gap area created on Dec. 3, 2013. The next upside target area is now $22-$22.50, but as indicated above, partial profit-taking is in order after the first profit target at $21 has been reached.
For risk management purposes, it would make sense to close the full position in KKD ahead of the earnings report on March 12.
Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!
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.
