Over the weekend, I found 5 recent IPOs set to skyrocket — but there is one that I’m really feeling at the moment… Luckin Coffee (LK).
With the market making all-time high, and the trade war news dying down… the “Starbucks of China” could be breaking out soon.
The company uses big data analytics and artificial intelligence to optimize customer experience and maintain quality control.
Traders are wondering if they should buy LK at these levels.
Well, I can’t tell them what to do, but I have broken down the chart and analyzed the stock for you. As well as, layout my plan on how I may trade it.
With LK, I’m going to be patient and wait for a clear entry. Of course, I’ll let my clients know about my every move. The one indicator that caught my eye that signaled Luckin Coffee could skyrocket soon was its extremely high short interest.
The company only has 38.61M shares floating. In other words, that’s the number of shares that’s available for we traders to buy and sell. Think of how massive the market is… 38.61M share float is just a drop in the buck.
Now, when you look at the short interest, it’s sitting at 48.99%. That means nearly 50% of the 38.61M shares are short the stock. To some traders, that high short interest may signal a drop.
However, I know that’s not the case.
So many traders just go out and short stocks thinking they’re overvalued. Sure, new IPOs may be overvalued in their eyes, but what about everyone else on the market?
When they pile in and push the short interest to astronomical levels, it actually puts them in a bad position… and they could be caught in a short squeeze.
Basically, since there isn’t a whole lot of shares available to trade, and so many traders are short… once a positive catalyst hits, the shorts may scramble and start taking offers to close out their positions.
In turn, this would cause the stock to continue higher… simply due to the fact, in a short squeeze, there’s massive demand but very little supply.
Could LK Breakout Soon?
If you look at the daily chart in LK, it broke above a key resistance level back in November… and now it’s forming a bull flag setup.
Normally, when you see a stock make a massive move, followed by a period of consolidation (what the stock is in right now)… if it breaks above the upper-end of the consolidation area, it could be set to break out.
With the high short interest and bullish chart pattern, I think it’s only a matter of time before LK breaks out. I’ll be keeping a close eye on LK, and if I come up with an attack plan – I’ll make sure to send it to my clients.
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