2016 has simply sucked for Starbucks Corporation (NASDAQ:SBUX). Starbucks stock is off about 10% for the year because Wall Street sold into every last rally attempt. As a result, SBUX is at yet another critical technical juncture that could see the trap door sprung.
Unless, of course, the bulls begin to show a pair.
To be clear, I love Starbucks coffee as much as the next guy. However, when it comes to SBUX stock, I have to put emotions aside or risk turning risk management into prayer. I often see private and institutional investors alike become so emotionally attached to a product, service or the mere idea of a company that even when all signs point lower … well, they keep defending it.
In many ways, the stalling of Starbucks stock since fall 2015 points to the continued cooling of the U.S. and international economy. Cyclical consumer stocks such as SBUX will by definition see a slowing, at least in rate-of-change terms of their sales, as the economy slows. This doesn’t mean Starbucks has a faulty business model. In fact, I remain very positive on the stock through a longer-term lens. But it does mean that the stock can’t fight the reality of economic gravity.
When I last mused about the state of SBUX stock on July 26, I offered that unless Starbucks could overcome some technical resistance, it was unlikely to revisit its June lows. Since then, Starbucks stock has indeed failed to rally much further, and it began retracing lower again, reaching my initial downside price target.
Now, things look increasingly dicey, and any further stumble could lead to a bigger leg lower for SBUX.
Starbucks Stock Charts
On the multiyear weekly chart, we see that SBUX stock continues to trend higher through a longer-term lens. Also, we see that the blue 100-week simple moving average has over the years acted as well-defined support. One could argue that at least intermediate-term bulls in the stock could live and die by whether Starbucks holds this line on a weekly closing basis.
On the daily chart, we see that since topping out in November 2015 with a fresh all-time high, Starbucks stock has formed a series or lower highs, as I marked with the red arrows. The lower high in July also took place right at the red 200-day moving average, which psychologically (at least for some traders) could weigh heavily on the stock’s perceived path of least resistance for the time being.
Although the stock since late June is now essentially unchanged, the round trip and the formation of yet another lower high in July now has SBUX retesting horizontal support in the low $50s for the third time this year.
Like I often say, the more a stock weighs on support, the higher the odds ultimately become of a better break lower. In the case of Starbucks stock, a break and hold below the $52.50 area on a daily or weekly closing basis could open up downside into the high $40s as a next downside target.
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