Trade of the Day: Starbucks (SBUX)

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Stocks started the week on a down beat, but clawed back to the unchanged line midday Monday before slipping back again in the closing minutes. It’s clear that there is some demand for certain stocks at certain levels, but not an overwhelming tide of want among bulls.

On the news wires, the most interesting comments came from Dallas Fed President Robert Kaplan, who said it was “significant” that the Fed no longer describes the risks to the U.S. economy as “balanced.” His statement suggests that the Fed is “going to take some time to understand what is going on.” He made no prediction on the number of rate hikes this year, and has made very dovish comments.

Also in comments late Friday, San Francisco President John Williams stated that recent events “argue for a smidgen slower process of normalizing rates.” Again, very dovish.

And Fed Vice Chairman Stanley Fischer noted in a panel discussion at the Council on Foreign Relations that that it was difficult to judge the implications of recent volatility. However, if it leads to persistent financial tightening, he said, it could signal a slowing global economy. This was also a dovish comment.

It’s hard to believe on some level that the world has given central bankers, who are mostly economists and eggheads, such control over the global economy. It didn’t have to be this way, so I would like to see someone write a book on how it happened.

There was a raft of other economic data points but not much to talk about. Global manufacturing data for January were mixed. China remains in contraction; Europe was mostly in line. The United States was slightly below expectations. That’s it in a nutshell.

After studying all the new data and looking at the stocks that are succeeding and failing this year so far, it seems clear that the consumer is still in decent shape and is buying relatively inexpensive things like athletic apparel, coffee and jeans, while corporate investments in capital projects and employees are slowing.

In technology, there are the 1% haves — Alphabet Inc (GOOG), Microsoft Corporation (MSFT), Facebook Inc (FB), Netflix, Inc. (NFLX) — and the 99% that are absolutely struggling. In banks, all the big institutions are cheap but probably facing big trouble from energy loans, and the regional banks are struggling with loans to businesses too.

My conclusion is that traders need to focus on regional banks, plus Canadian banks (big lenders to energy) at appropriate places on the short side, and stick with consumer stocks on the long side of the tape. Today’s recommendation falls into the latter category.

Trade of the Day: Starbucks Corporation (SBUX)Starbucks Corporation (SBUX) shot up over its four-month downtrend late last week, and kept the momentum going on Monday. This could be a big winner during the next year. Affordable luxury is where it’s at in this environment.

Buy Starbucks at $61.10 limit, good till canceled. Sell half at initial target $63.80 and sell the second half at final target $66. Set a stop at $56.50, good after 10:30 a.m. ET only.

Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation.


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/trade-of-the-day-starbucks-sbux-2/.

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