Friday, August 12, 2011

Market plunge and relative strength: Caribou Coffee (CBOU)

In the week that's passed since our last post, the stock market decline deepened, Standard & Poor's downgraded the US' debt from AAA to AA+, several European countries enacted a short-selling ban, and many stocks were taken to the cleaners. 

Of course, after declining 16 percent in 3 weeks (from 1,340 to 1,120 on the S&P 500), the US market has seen a bit of a relief rally the past few days. 

Still, it's been very tough to find names that didn't get hit hard in this market. Which is why the relative strength in a stock like Caribou Coffee (CBOU), which not only held up but is making new highs, is impressive. 

Here's a view of CBOU vs. the Nasdaq Composite index. You can see how the stock has held up during the index's recent decline. 

While the action in CBOU looks good and it's earned a place on the watch list, I'm still proceeding with caution here. Anything can happen in a volatile news-driven market like this, and we've seen industry-leader, Starbucks (SBUX) and recent favorite, SodaStream (SODA) slump or get knocked down hard after recent earnings reports. 

Build your watchlists, view developments from the sidelines, and keep a close eye on your risk management process if you choose to speculate here on the long or short side.