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Short-Selling with the O'Neil Disciples: Turn to the Dark Side of Trading by Chris Kacher, Gil Morales

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CHAPTER 7

Case Study #3: Keurig Green Mountain (GMCR) in 2011

Green Mountain Coffee Roasters (GMCR) was another favorite of valuation short-sellers in 2011, but the stock's persistent rally simply ground up short-sellers like so many rich, aromatic coffee beans all the way up. The company made a name for itself with its innovative Keurig single-cup coffee makers and K-Cup® format, which personalized the so-called “coffee experience.” GMCR later changed its name to Keurig Green Mountain in order to emphasize its flagship products while retaining the same stock symbol. Figure 7.1 shows the latter part of the stock's indefatigable upside run, the peak in September 2011, and the ensuing downtrend that extends into 2012. We should note that GMCR's top occurred about two months after NFLX's top and price breakdown, which were discussed in Chapter 6.

What makes GMCR stand out in my mind as an interesting case study is the way it formed not one but two head-and-shoulders (H&S) patterns within the overall downtrend off of the September 2011 peak. We can see the compact, roughly 12-week H&S pattern that formed right at the top, and the wider 24-week H&S that formed between November 2011 and May 2012. Both of these H&S formations offered decent short-sale opportunities, so let's break Figure 7.1 into its smaller components on the daily charts, starting with Figure 7.2.

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FIGURE 7.1 Keurig Green ...

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