InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Shares of energy drink maker Monster Beverage Corporation (NASDAQ: MNST ) dropped hard last week on the back of its latest earnings report that missed analyst expectations. Given the sharp gap-down price action, two potential trades now set up for active investors and traders.
Source: Mike Mozart via Flickr (modified)
When Monster stock missed analyst expectations on both the top and bottom line in its latest quarterly report, traders didn't take long to react negatively. The stock quickly dropped in after-hours trading and then fell more than 15% on March 1. Last week's sharp selling pressure likely cleared many weak hands out of the stock, yet many Wall Street analysts kept their price targets in the high $60s to low $70s.
Monster Stock Charts
Click to Enlarge
Moving averages legend: red - 200 week, blue - 100 week, yellow - 50 week
On the multiyear weekly chart, we see that MNST stock had a clear and impressive breakout move in August 2017, slicing above horizontal resistance (black horizontal) around the $54-$55 area. This led to a powerful push higher right into the January 2018 broader stock market highs, where the stock overshot its 11-month up-trend.
In January, the stock became very stretched not only above its intermediate-term but also longer-term simple moving averages, which we can see with the MACD momentum oscillator at the bottom of the chart having reached "overbought" readings last seen in 2015.
As a result of last week's roughly 18% drop, MNST stock has now once again reached the aforementioned breakout point for a revisit. While revisiting previous resistance often times is a healthy thing for stocks, when the drop back to support comes with strong downside momentum, it can lead to choppiness for a while.
From where I sit, I envision MNST stock ultimately being able to hold support somewhere in the high $40s to low $50s, but in order to get back into longer-term hold positions, I must first see a proven bottom-building process on the weekly chart. This has yet to take place.
Click to Enlarge
Moving averages legend: red - 200 day, blue - 100 day, yellow - 50 day
On the daily chart, last week's post-earnings selloff now has MNST stock significantly oversold. In fact, the last time the stock was this oversold as per its MACD momentum oscillator it was November 2016, which resulted in a quick 10% rally.
This current juncture in MNST stock now sets up for a near-term bullish bet.
More risk-averse traders could look to sell out-of-the-money put spreads in the stock for income. I will explain this income strategy in detail this Tuesday in a special webinar for InvestorPlace readers only. You can register here for this free webinar.
More aggressive traders could try to buy some MNST stock for an oversold bounce back toward the $57-$58 area, using a stop loss at $52 on a daily closing basis.
Check out Serge Daily Market Outlook for March 5.
Tell us what you think about this article! Drop us an email ateditor@investorplace.com,chat with us on Twitter at@InvestorPlaceorcomment on the post on Facebook. Read more about ourcomments policy here.
Take Serge's quiz to find out which trading strategy best suits your personality.
More From InvestorPlace
- 5 Blue-Chip Stocks to Buy in March
- 7 'Strong Buy' Stocks That Look Cheap Right Now
- 7 Best Fidelity Mutual Funds for Retirement Planning
The post Trade of the Day: Two Ways to Trade Monster Beverage Corporation appeared first on InvestorPlace .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
