The Cheesecake Factory Incorporated operates restaurants in the United States. The company produces cheesecakes and other baked products for own restaurants and international licensees, as well as external foodservice operators, retailers, and distributors.
Take a look at the 1-year chart of Cheesecake (NASDAQ: CAKE) below with the added notations:
CAKE hasn’t made much progress since its gap lower last June. However, since that drop, the level of $50 (blue) has acted as both support and resistance on multiple occasions. Now that CAKE is pulling back again, the $50 level should provide support yet again.
The Tale of the Tape: CAKE has a key level at $50. Traders could enter a long position on a pullback down to $50, with a stop placed under the level. However, traders that are bearish on the stock might have an opportunity to get short if CAKE were to break back below $50 again.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT