How to Trade Starbucks Corporation (SBUX) Stock After Earnings

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Third-quarter earnings season rolls in this week with more big name companies set to report their latest financial results and update investors on their respective outlooks. Specifically, coffee retailing giant Starbucks Corporation (NASDAQ:SBUX) is set to report earnings Nov 3. after the close of trading for the day. SBUX stock has been putting in a series of lower highs since topping out in late 2015; barring a significant price reversal to the upside, the stock’s path of least resistance still points lower. Here is what I am looking for in Starbucks stock following this Thursday’s earnings report.

beatthebellWith about 25% of companies in the S&P 500 scheduled to report earnings this week, much could happen. Last week a slew of large cap technology stocks like Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) reported results and while the damage thus far has been contained, both of those names saw failed intra-week rallies that point to buyer exhaustion.

Shares of Starbucks as of Friday’s close are lower by about 11% for the year and off their 2015 highs by about 15%. This trend of important stocks not only trading well off their 2015 highs, but also putting in meaningful negative divergence versus the S&P 500 is something that continues to raise red flags in my analysis. This is true because the more legs that get kicked out underneath the larger indices, the quicker we get to a breaking point in those indices too.

SBUX Stock Charts

Looking at Starbucks stock through the multi-year weekly chart we see that the too-steep-to-last blow-off rally in 2015 ultimately capped the stock in October of last year and ever since, a series of lower highs have developed. A few weeks ago, SBUX stock retraced back to its blue 100-week simple moving average, a reference area that has offered support in the past.

This area also matches up with the 38.20% Fibonacci retracement measured from the rally move from late 2014 into the October 2015 highs. Looking at this confluence area and analyzing the Fibonacci retracement, we can determine that if this area of support breaks, then the next logical area of support comes in around the $50 mark, which is a 50% retracement of the aforementioned rally.

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The options market currently prices in about a 4% move in either direction in SBUX stock following the upcoming earnings report this Thursday. In price terms, using Friday’s closing levels, this would mean a move back up toward the red 200-day simple moving average or on the downside toward the $51 mark.

Note that the 200-day moving average has held as resistance for Starbucks stock since breaking below it in April. Thus, a post earnings rally back to this moving average may offer traders another area to sell into ‘strength’ for a trade.

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Alternatively, should SBUX stock fall roughly 4% as indicated by the options market and thus break below the support area marked by the blue box, then the move toward the aforementioned superior support area in the $49 to $50 range would already be getting underway.

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