It looks like we're having a year-end rally. Restaurant stocks are climbing. Analysts are talking up many of the stocks. A “Fast Money” segment on CNBC on December 8th referred to “the three hottest stocks on the planet right now”: Brinker International (EAT), Dineequity (DIN), and Cheesecake Factory (CAKE).
Back in the November 24th Seasonal Forecaster newsletter I covered the chart setup of Brinker, where it was setup to break to new highs. It did, we're up 2.9% so far on that trade, and it looks ready to log further gains.
I don't follow Dineequity because it regularly settles into year-long narrow trading ranges – not good for trading.
Cheesecake Factory is another matter. Does it look like one of the hottest stocks on the planet?
Not currently. CAKE is having a hard time breaking above the 49 to 50 level. Several attempts over the past 13 months failed (Fast Money said it was ready to break out to new highs).
But what about CAKE's seasonal pattern? Does it have a strong track record of gains this time of year, making it likely to follow through this year?
Not quite. In fact, over the next 3 weeks, CAKE has lost an average 2.8%, with losses in 17 out of 22 years.
Suppose 22 years ago you decided to implement a trading system where you would buy this new restaurant stock, CAKE, on this week each year and hold it for 3 weeks, expecting to profit from Cheesecake Factory's increased business this time of year (I've noticed they seem to place their restaurants in malls).
Well, it wouldn't have been a good idea to do it with your kid's college fund. You would be down 61.7%, having suffered 18 losses overall, 6 consecutive.
CAKE may rise above recent resistance and continue on to strong gains. But there is a history of selling in the stock this time of year. So from a seasonal analysis perspective, and the fact that 6 or so attempts to penetrate the 49-50 area have failed, would you call it one of “the three hottest stocks on the planet right now” ?
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link: www.markettamer.com/seasonal
Copyright (C) 2014 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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