Forget About Bottom-Picking This Mountain

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The weekly chart above of GMCR shows a pretty clear descending triangle breakdown, typically a bearish pattern, with heavy selling volume (post-earnings).

In addition to several bits of bearish analysis on GMCR back in 2011, I wrote this post back in early-April about the use of logarithmic scales versus arithmetic ones for long-term charts where price has appreciate rapidly. It is an overlooked aspect of technical analysis, but when you are dealing with dramatic run ups in a relative short period of time, you really do need to use the log scales to gain better perspective on how much these stocks can actually drop once the air is out of the tires. Once again, trying to bottom-pick GMCR, even after this huge price drop, is likely to be a losing endeavor for anything more than a very quick trade.

Here is part of what I wrote in that post:

Interestingly, the algorithmic scale, the first chart below with the same monthly timeframe as the second chart, gives the appearance that GMCR has already crashed and is basically done going lower. Again, compare that algorithmic look of the “already crashed” Green Mountain to the logarithmic scale, where the bears are just getting warmed up here. So, if you think using a logarithmic scale to eliminate a blow-off move is a sneaky way to add points to a given bullish thesis, think again. The value of using the logarithmic scale for longer-term charts where price has rapidly appreciated is only captured by confronting the reality of the technicals as objectively as you can.

In some cases, it may very well be true that using a logarithmic scale that eliminates a parabolic move on an algorithmic scale is bullish. Indeed, the more objective interpretation in that case would be that the stock simply saw a secular breakout. That may be true for a stock like Apple, but in my view it is not correct for Green Mountain Coffee Roasters. For the foreseeable future, I would avoid GMCR for anything more than a quick trade.