Weekly Chart
So we have a type of Gap in the stock price that is crucial to analyze.
We know that these two companies were recently merged and that they plan to pay a hefty dividend at 9%.
This is a challenging analysis to take on because there are many different scenarios that could play out with this gap in price.
The types of scenarios for this gap are: common gap, breakaway, runaway and exhaustion.
Common Gap: Could have been caused if dividends were about to be paid out shortly after the Gap in price. We know that dividends were paid out January 4th just before that January 22 Gap started. We do know that KDP will be paying a hefty dividend at 9% so we can see this as an obvious incentive for long term positions to be accumulated. Because we appear to have broken out of our trading range I would be leaning toward this gap not getting filled but lean toward a potential breakaway gap.
Breakaway: would be from a chart pattern like a typical breakout, followed by investors jumping in because they missed the run. The volume signatures are the only real tool that will help us decide which type of Gap occurred. As stockcharts.com says, "It is better if the volume does not happen until the gap occurs. This means that the new change in market direction has a chance of continuing." I would say that the volume here does support the breakaway gap as the large red volume candle came in after the gap occurred and as volume analysis dictates could have put in bottoming action at that level, which still has not been tested. To help define if it was a breakaway gap lets see if we have a defined chart pattern that it broke out of. We did have a type of consolidation and I measured it as a bull flag where the target has already been reached. This doesn't mean it won't continue up, just that our target had been reached, that's all. The recent green volume candle which is very large on June 25th would typically be a topping candle.
Runaway gap: Caused, "From increased interest in the stock, For runaway gaps to the upside, it usually represents traders who did not get in during the initial move of the up trend and while waiting for a retracement in price, decided it was not going to happen. Increased buying interest happens all of a sudden, and the price gaps above the previous day's close. This type of runaway gap represents an almost panic state in traders. Also, a good uptrend can have runaway gaps caused by significant news events that cause new interest in the stock. In the chart below, note the significant increase in volume during and after the runaway gap."
Exhaustion gap: as Stockcharts.com points out, "Exhaustion gaps are those that happen near the end of a good up- or downtrend. They are many times the first signal of the end of that move. They are identified by high volume and a large price difference between the previous day's close and the new opening price. They can easily be mistaken for runaway gaps if one does not notice the exceptionally high volume."
So there we have it!... A lot of confusion and back to realizing that we could be looking at any one of these 4 scenarios. I would be looking for entries at the two support areas and be careful to see if the gap starts to fill as an exit area and buy back in upon a complete filling of the gap. I don't think that the exhaustion gap has a lot of merit as this merger is quit new and the high dividend rate will supply the hype needed for continual growth. There wasn't an exorbitant bull run, in fact I believe the that price is near its IPO prices right now ($20). If the IPO price is defended it would line up with our first area of support, which may be a decent area to level in buying, and maybe keeping some set aside in-case we get to lower support at 18.63. Breaking below 18.63 could mean that we get a complete gap fill and base out in the 15.83 area.
Technical pattern: We broke-up out of an triangle type pennant. This is cause for upside. Taking a measured move from our last triangle breakout would put us as already hitting our target. This could signify a need for a little consolidation before further breakout. A good chance to accumulate at lows I suppose. We did get a very large Green candle recently at its high. This type of volume would imply topping action, yet the large red volume on Jan 29 could imply breakout volume.
Indicators: Daily Stochastic is approaching oversold territory. It will pass through the 20 level and as it approaches breaking above the 20 analyze your support areas for potential buy. RSI has no bearish divergence, so there is no indication of a reversal there, but we are in the high area of the RSI. This will probably want to come down a little before making continued movement higher.
Overall, I would let the price continue to float back down and see how it acts with more price action data. This will give a chance for our RSI indicators to reset a little and price to consolidate. I would be looking to buy some at (10% below current price) 20.51 and (20% below current price) 18.62, and maybe getting out if we break 18.0 and look for a gap fill re entry at 16.
So we have a type of Gap in the stock price that is crucial to analyze.
We know that these two companies were recently merged and that they plan to pay a hefty dividend at 9%.
This is a challenging analysis to take on because there are many different scenarios that could play out with this gap in price.
The types of scenarios for this gap are: common gap, breakaway, runaway and exhaustion.
Common Gap: Could have been caused if dividends were about to be paid out shortly after the Gap in price. We know that dividends were paid out January 4th just before that January 22 Gap started. We do know that KDP will be paying a hefty dividend at 9% so we can see this as an obvious incentive for long term positions to be accumulated. Because we appear to have broken out of our trading range I would be leaning toward this gap not getting filled but lean toward a potential breakaway gap.
Breakaway: would be from a chart pattern like a typical breakout, followed by investors jumping in because they missed the run. The volume signatures are the only real tool that will help us decide which type of Gap occurred. As stockcharts.com says, "It is better if the volume does not happen until the gap occurs. This means that the new change in market direction has a chance of continuing." I would say that the volume here does support the breakaway gap as the large red volume candle came in after the gap occurred and as volume analysis dictates could have put in bottoming action at that level, which still has not been tested. To help define if it was a breakaway gap lets see if we have a defined chart pattern that it broke out of. We did have a type of consolidation and I measured it as a bull flag where the target has already been reached. This doesn't mean it won't continue up, just that our target had been reached, that's all. The recent green volume candle which is very large on June 25th would typically be a topping candle.
Runaway gap: Caused, "From increased interest in the stock, For runaway gaps to the upside, it usually represents traders who did not get in during the initial move of the up trend and while waiting for a retracement in price, decided it was not going to happen. Increased buying interest happens all of a sudden, and the price gaps above the previous day's close. This type of runaway gap represents an almost panic state in traders. Also, a good uptrend can have runaway gaps caused by significant news events that cause new interest in the stock. In the chart below, note the significant increase in volume during and after the runaway gap."
Exhaustion gap: as Stockcharts.com points out, "Exhaustion gaps are those that happen near the end of a good up- or downtrend. They are many times the first signal of the end of that move. They are identified by high volume and a large price difference between the previous day's close and the new opening price. They can easily be mistaken for runaway gaps if one does not notice the exceptionally high volume."
So there we have it!... A lot of confusion and back to realizing that we could be looking at any one of these 4 scenarios. I would be looking for entries at the two support areas and be careful to see if the gap starts to fill as an exit area and buy back in upon a complete filling of the gap. I don't think that the exhaustion gap has a lot of merit as this merger is quit new and the high dividend rate will supply the hype needed for continual growth. There wasn't an exorbitant bull run, in fact I believe the that price is near its IPO prices right now ($20). If the IPO price is defended it would line up with our first area of support, which may be a decent area to level in buying, and maybe keeping some set aside in-case we get to lower support at 18.63. Breaking below 18.63 could mean that we get a complete gap fill and base out in the 15.83 area.
Technical pattern: We broke-up out of an triangle type pennant. This is cause for upside. Taking a measured move from our last triangle breakout would put us as already hitting our target. This could signify a need for a little consolidation before further breakout. A good chance to accumulate at lows I suppose. We did get a very large Green candle recently at its high. This type of volume would imply topping action, yet the large red volume on Jan 29 could imply breakout volume.
Indicators: Daily Stochastic is approaching oversold territory. It will pass through the 20 level and as it approaches breaking above the 20 analyze your support areas for potential buy. RSI has no bearish divergence, so there is no indication of a reversal there, but we are in the high area of the RSI. This will probably want to come down a little before making continued movement higher.
Overall, I would let the price continue to float back down and see how it acts with more price action data. This will give a chance for our RSI indicators to reset a little and price to consolidate. I would be looking to buy some at (10% below current price) 20.51 and (20% below current price) 18.62, and maybe getting out if we break 18.0 and look for a gap fill re entry at 16.