Dollar Doughnuts

04/11/2003 12:00 am EST


Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

“We reiterate our bullish posture on Krispy Kreme Doughnuts (KKD NYSE), which recently reported earnings that beat Wall Street estimates by a penny per share. What's more impressive is that KKD was able to exceed quarterly earnings from the prior year-ago period despite having one less week in the quarter. More importantly, the company’s CEO sees system-wide sales growth gaining 30% in 2004. We believe that KKD's technical trend will be supported by this announcement. Additionally, we like the fact that the put/call open interest ratio on KKD remains at a lofty 1.34, which ranks in the 90th percentile. Meanwhile, the stock once again rallied up to resistance at the 35 mark before ending the session below this key level. This marks the fourth test of resistance at this region in the past two weeks. As students of technical analysis are well aware, the more frequently a resistance level is tested, the more likely it is to fail.


“Turning our attention to the options market, speculators continue to exhibit high levels of pessimism on KKD in anticipation of a decline. Currently, the equity's Schaeffer's put/call open interest ratio (SOIR) stands at 1.37, which is in the 86th percentile of the past year's worth of SOIR measures. Stock players also continue to bet against a further appreciation in the shares, as evidenced by the security's short-interest ratio of 11.84 days to cover. With pessimism on the part of stock and options players continuing to sit near extreme levels, we feel that the path of least resistance for the shares is decidedly higher. Traders should continue to target a move up to 37 with a stop-loss set for a trade below 31.80. In our options portfolio, we hold the Krispy Kreme Doughnuts April 30 call (KKDDF).”

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