THE BIG IDEA
Don’t you wish that the “good times” were normal and everything else that happens is just an anomaly?
A few days ago we came across a trader who had a love interest in Dutch Brothers (BROS), the upstart coffee chain. The shares had tumbled down to $40 and this trader commented that it was the same company that was at $70 just a couple months ago. A buying opportunity!
This is a classic case of “price anchoring”.
We all have done it. It is simply the way our pathetic human brains are wired. We like to compare the current price to some other reference price - often the price we paid or an attractive high-water mark.
Maybe we can see what this poor trader was unable or unwilling to see.
1) Something did change. After the market closed on August 5th, Dutch Brothers released their quarterly earnings report. The headline numbers for the previous quarter were perfectly good. However, management said that their internal forecasts for future quarters included a slowdown in sales growth and pressure on profit margins. Yep, that’s the big gap down you see on the chart.
2) Macroeconomic influences. Nerdy economists might call them “exogenous factors”. The company might be the same, but the world around it changed. For Dutch Brothers, their customers may now have less disposable income at the same time that coffee bean prices are rising.
3) Market sentiment. Even if the first two items didn’t exist, the shares could still have sold off because the market moved on to the next shiny new toy. Money flows from one pocket of the market to another all the time. The tide came in for BROS and lifted it to $70, then the tide went out.
We were tempted to ask this trader, if Dutch Brothers is the same now as it was two months ago, why they thought $70 was the correct price for the stock and not $40. Couldn’t it have been overvalued at $70?
And why did they disregard management’s outlook about future results?
It all can look silly when someone else anchors a price as this person did, and will not let go. We all need to guard ourselves against falling into the same trap.
SEEN ON THE INTERNETS
Larry Thompson, CMT posts on the internets as Hostile Charts. On Friday, he provided the chart copied below along with a question:
Which fact are you sharing this weekend?
It is a good question.
For our money, we are focused on the second “fact”. The market-cap weighting of the S&P 500 is hiding alot of weakness in many corners of the market.
Any stock market indexes that do not overweight the megacaps have been in a downtrend for more than a month now.
NUMBERS ONLY
31.12% | Adding on to this week’s Seen On The Internets, only 31.12% of stocks on the New York Stock Exchange are above their 50 day average. |
+ 13.35% | The ARK Genomic Revolution ETF was up 13.35% last week, making another multi-year high. |
13 years | Shares of Nike (NKE) are down to prices not seen since 2013. How the mighty have fallen…. |
SWINGEX INDEX
As of market close on: 18 September 2026
Swingy says: The index continues to be positive. You could still make a quick run here.
Learn more about how the Swingex Index works here.
WATCHER
Trade ideas highlighted here each week have a timeframe of 3 days to 3 weeks in mind. They are not recommendations to buy or sell. Swing traders should follow up with their own research.
NEOG (Neogen): Neogen’s products “can be found at every step of the food chain” mostly focused on food safety and animal health.
We are mostly focused on the health and safety of our portfolios, and NEOG has been delivering there.
A July 30th earnings report sent the stock flying but then it quickly settled into a 6-week-long base. The chart looks similar to that of Moderna, which we featured here two weeks ago.
In the case of NEOG, we have spotted a pickup in trading volume recently which has coincided with a move out of the recent trading range.
Look for NEOG to continue adding on to its newly formed uptrend. If the breakout fails, remember the Wall Street aphorism that “from failed moves come fast moves in the other direction”.