Starbucks Corporation (NASDAQ:SBUX) stock have continued to struggle ever since the coffeemaker’s shares topped out last October. And as unpleasant as it might be to hear, the path of least resistance — given the broader economic slowdown and the bearish tone on Starbucks’ stock charts — is lower.
Active investors and traders should look to sell or even short SBUX into any bounces or technical breakdowns. Here’s why.
On Tuesday, Starbucks announced a new line of summer drinks, which included a so-called Nitro Cold Brew coffee. While a new drink announcement doesn’t necessarily have to send shares rallying, it is notable that SBUX stock closed lower by nearly 50 basis points on the day.
Furthermore, Starbucks CEO Howard Schultz in a CNBC interview on Tuesday admitted that the U.S. economy was fickle, which doesn’t exactly support any meaningful price appreciation for SBUX stock for the time being.
Starbucks (SBUX) Stock Charts
Looking at the multiyear weekly chart, SBUX stock — despite already correcting notably off the October 2015 highs — still is trading well above both the 2009 and 2012 support lines. We can see that after an orderly ascent into 2011 and following a good retracement in 2012, Starbucks shares began to steepen their slope in 2013 and even more so in 2014 and 2015.
Because a stock can only withstand so much steepness in its slope before gravity sets in, SBUX ultimately exhausted itself last October.
From those highs down into the February lows this year, Starbucks stock did correct close to 20%, but from this multiyear perspective, we can see that:
- The consolidation has largely taken place in a sideways fashion
- SBUX stock looks to have built a topping pattern that may resemble a head-and-shoulders top.
A better mean-reversion or corrective move in Starbucks should at the very least take it toward the $50 area if not into the low to mid-$40s.
On the daily chart, I marked the 12-month horizontal line with the blue box, which at the lower end comes in around the $52 area. After a big rebound off the February lows SBUX stock gapped down and sold off following the April 21st earnings report.
The stock has continued to trickle lower since, and over the past few trading days looks to have traced out another bearish flag pattern, which I marked with the two black parallels.
The blue support area in the low $50s looks to be the next downside target that traders can play the stock toward, which as highlighted above may ultimately see the stock fall into the low to mid $40s.
Like what you see? Sign up for our daily Beat the Bell e-letter and get Serge’s investment advice delivered to your inbox every morning! You can also download his FREE e-Book: ‘The 3 (FREE) Tools I use to Reap Profits in The Markets.’
