Starbucks Corporation (SBUX) — While SBUX stock is down 4.5% year to date, shares have been stuck in a choppy sideways consolidation phase since the second half of 2015, not unlike the broader market. I continue to believe in Starbucks as a growth story, albeit a slower one than it once was. But for now, the sideways shuffle does not show any signs of ending and may result in another leg lower for SBUX stock.
Following Starbucks earnings report on April 21, shares gapped lower the next day and closed the session down almost 5%. The move came on a notable spike in volume, and once more SBUX stock turned away from the upper end of the trading range that has been in place since last summer.
On the weekly chart, we see the ascent off the 2009 lows steepen until upside momentum finally became too much to sustain in mid-2015.
What’s different about the overshooting rally from October/November is that it came on notably lower momentum, as represented by the relative strength index (RSI) at the bottom of the chart. This is in contrast to the overshooting rallies in April 2012 and October/November 2013, which I also marked on the chart. Note that those rallies also coincided with peaks in momentum.
The lower high in momentum in October 2015 was a significant development and has me thinking the current consolidation phase in SBUX stock could ultimately lead to a better corrective phase than what we saw in the other two periods mentioned.
Moving on to the daily chart below, thanks to the sideways movement since last summer, the 50-day, 100-day and 200-day moving averages are now very close together. From a tactical perspective, this confluence area, currently around $59, should act as resistance. Note that this is also where SBUX stock opened on April 22, following the earnings report.
The bigger picture consolidation phase for SBUX stock is most likely not over just yet. Look for the $59 area or below to act as resistance and to leg into a short-side trade for a move back down toward the February lows in the low $50s.
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As of this writing, Serge did not hold a position in any of the aforementioned securities.