Trade of the Day: How to Play Starbucks Corporation (SBUX) Stock After Earnings

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Starbucks Corporation (NASDAQ:SBUX) is scheduled to report its next batch of earnings this week on Thursday after the close of trading for the day, and looking at the chart, a promising trade could set up on the back of this report.

To be clear, this is a trade that I am looking to put on once the earnings report has come to pass and an initial reaction by the stock has showed its colors, and only under the circumstances described in below.

For perspective and transparency note that when I last mused about SBUX stock in this column on July 7, I said that a bullish reversal could soon bring about new joy for the bulls. While two days later the stock did give a buying signal, traders and investors were likely already too focused on the upcoming earnings to really move the stock, which has largely trotted sideways since my early July note.

SBUX Stock Charts


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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week 

On the multiyear chart, note that SBUX remains in a well-defined uptrend and currently sits on a confluence of support made up of the 50- and 100-week simple moving averages as well as the multiyear uptrend line (blue dotted arrow).

While in my eye, this remains a constructive chart, the bears will be quick to point out that SBUX stock in June did top out at its previous all-time highs from October 2015. While anything can happen from a price action perspective following an earnings announcement, not until SBUX stock decisively breaks below the $56 area on a weekly closing basis would the intermediate term bullish trend come into jeopardy.


Click to Enlarge

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week 

Before looking at the daily chart, let’s note that the options market currently expects SBUX stock to move roughly $2.30 in either direction following Thursday’s earnings report. Using Tuesday’s closing price for the stock at $58.55 for example, this would indicate the stock could either climb toward the $61 level on the upside or toward the $56 area on the downside. Either way, if the options market is correct, SBUX stock is set to move out of the most recent multiweek sideways range.

Today I’ll be hosting a special webinar Wednesday, July 26 for InvestorPlace readers to explain how to turn trade setups such as the one currently in SBUX stock into winning trades for monthly and quarterly income.

Because in my eye SBUX stock remains in a longer- and intermediate-term up-trend, I am primarily looking to buy the stock if, and only if, it were to gap higher and above the $59 area on a daily closing basis. Such a move would then confirm the aforementioned key confluence support area near $56 – $57 and point the stock higher toward the low $60s as a first upside target.

Alternatively and to respect both sides, should SBUX stock drop and hold below the $56 area following the earnings report, then a bearish trade could setup toward a first downside target near $50.

Check out Anthony Mirhaydari’s Daily Market Outlook for July 26.

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