Green Mountain Charts: Catch This Monster

By L.A. Little of tatoday.com, author of Trade Like the Little Guy.

Monster stocks aren't something that you can easily identify and they are even harder to stay with once you get on board. Sometimes I think they are called monster stocks because they are a monster to ride. Let's take a look at Green Mountain Coffee(GMCR), a stock I would currently identify as a monster stock. The company sells cocoa, teas, and coffees in both domestic and international wholesale and retail channels as well as directly to consumers.

So what creates a monster stock or, at least the possibility of one? They typically have a product or a business model that is disruptive, meaning it invades existing markets or simply creates new ones. Green Mountain is of the invasion type, invading Starbucks'(SBUX) space and doing so with vigor.

Green Mountain continue to get bigger through organic growth as well as via takeovers, the most recent being its bid for Diedrich Coffee(DDRX). That offer has hit the GMCR stock price recently, which may be the opportunity a patient trader waits for.

But before we get to that, take a look at the long-term view in the monthly chart above of GMCR. There are a few items of note.

To start with, notice that GMCR survived the entire 2007 through 2009 decline with a huge hit to its stock -- unlike almost every other stock in the trading universe. Note the large rectangular consolidation pattern that developed and was maintained throughout that period. Now it's true that this was a very large range, but considering the financial meltdown and its impact on all stocks the declines seen here were reasonably contained and quickly regained.

The second item is that the stock traded in a $15 range for a bit more than 18 months before breaking topside. More importantly, note that when it did break higher volume expanded and confirmed the uptrend. If you extrapolate and consider that Green Mountain may do the same thing again, then there is probably an extended period of consolidation possibilities at which the trading range is rather large.