Trade of the Day: The Bear Case for Starbucks Stock

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sbux stock - Trade of the Day: The Bear Case for Starbucks Stock

Source: Starbucks

Even though shares of Starbucks (NASDAQ:SBUX) have rallied about 10% over the past few weeks, SBUX stock remains lower by roughly 10% for the year. Along the way Starbucks shares violated some crucial technical support areas, which is just one reason why, in my eye, this name has plenty of downside in store.

Before digging into some charts, I would like to be clear that whenever I see an opportunity to bet against a stock, the time frames of those “trades” are usually short term, to at most, intermediate-term, in duration, i.e. days to months.

In contrast to making bullish bets on any given stock, on the short side, many sharp counter-trend rallies and other surprises often are too much for many bears to sustain … except for some large, deep-pocketed hedge funds.

Case in point, in the longer run, SBUX stock is still an interesting equity to own, but the near (to possibly intermediate-term) offers a better reward-to-risk opportunity on the short side, as we can see in the following charts.

To start off let’s look at the multi-year weekly chart where we see that SBUX stock is marginally holding on to its 2009 up-trend as indicated by the blue dotted line.


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More importantly, however, when the stock began to top out in October 2015 it slipped into a frustrating sideways pattern for the bulls. This ultimately saw the stock attempt a few more rallies that however quickly got rejected.

The most recent rally in early 2018 marked a notable lower high on the chart and ultimately led the stock to drop below the well-defined horizontal support area (black line) around the low $50s.

Although over the past few weeks this stock has bounced back some, it so far is merely pushing back up to a layer of clearly visible technical resistance (former support).

Moving on to the daily chart, we see more opportunity in the dead cat bounce in SBUX stock. Note that this bounce now has the stock right back at former horizontal support, which currently also happens to line up with the yellow 50-day simple moving average.

From here, less risk-averse traders could look to leg into initial short positions in the stock around the $52.50 area with a next downside target at $48. A break above $54 would be a stop loss signal.


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Alternatively, more risk-averse traders would at this juncture first want to wait for a bearish reversal day before entering shorts, i.e. (a notable down-day) as confirmation that buying has abated and that the stock is ready to move lower again.

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Article printed from InvestorPlace Media, https://investorplace.com/2018/08/trade-of-day-bear-starbucks-sbux-stock/.

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