Profit Taking In KKD

Krispy Kreme announced earnings after the bell yesterday, and while there is some concern about the decline in total revenues, other factors were decidedly positive. The turn-around plan seems to be working and plans for new company and franchise stores are moving forward.

Nevertheless, there is some profit taking today. There are multiple levels of support, in particular, the 50 and 200 demas as well as the recent swing high of 4.25. In order for the stock to really take off, however, it needs to break the $5 barrier which will allow mutual fund and institutional support. That said, I am definitely encouraged by the lack of news coverage on this stock. It is showing positive changes while maintaining its underloved status. This is a great contrarian sign.

The expected shakeout in the broader markets may be underway, but it is hard to tell since this is options expiration Friday. I don't think today's decline is the beginning of a larger correction just yet. I think we will have to see a retest of this week's highs first, but this view could change if an impulse wave down develops.

One area of concern that has developed over the last couple of days is oil. Oil has failed to produce a completed impulse wave after the recent breakout from a running triangle pattern. If it falls below 78.86, we may have a busted pattern. I still think the overall trend is up, but a wait and see cautious attitude is warranted. The current pattern could end up morphing into something different with an expanded flat correction before heading higher. Critical support remains well below current levels at 69.50.