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Will Shake Shack Shake Its Bearish Trend?

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Shake Shack Inc. (SHAK), an iconic New York City-based burger and shake chain, has had a rough couple of years since reaching an all-time high of more than $90 following its initial public offering in early 2015. The company has generally met revenue and earnings expectations in recent quarters, but has failed to achieve the upside surprises that were common during its first two years of being a public company and supported its lofty valuation.

Despite the stock’s valuation concerns, the company remains one of the best managed casual dining restaurants in the country. Management is focused on producing high-quality menu items in collaboration with top chefs while maintaining a strong culture and brand. New restaurants in non-NYC markets have also shown robust performance, which bodes well for the company’s future growth prospects as it expands throughout the country.

The stock’s valuation remains relatively lofty in light of its financial performance and growth rates, but the company could ‘grow into’ the valuation over time. With earnings expected on May 11, investors will be watching closely for any upside surprises that could reignite the stock and encourage a turnaround of its long-term bearish downtrend.

In the meantime, short-term traders are focused on the possibility of capitulation as short-sellers cover their positions. ShortSqueeze indicates that there are about 8.8 million shares short, as of April 12, representing about 58.3% of the float. This short interest has been falling over the past several days as the stock’s momentum has been turning positive.

On a technical level, traders should watch for a breakout from the pivot point at $33.50 and/or the 50-day moving average at $33.90 to the upper trend line resistance and 200-day moving average at $35.48. A breakout form those levels could spur a rally to R2 resistance at $39.89, which coincides nicely with prior reaction highs. Moving average convergence-divergence (MACD) has turned positive while the relative strength index (RSI) remains neutral at 51.05.

In the end, the stock could see a brief turnaround on a technical level although the long-term picture remains dependent on the company’s ability to beat earnings expectations.

Charts courtesy of StockCharts.com. Author holds no positions in stocks mentioned.

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