Trade of the Day: Starbucks Stock Close to Wash-Out Selling Levels

It's been an ugly few weeks for SBUX stock but a buy signal is close go triggering

Shares of coffee retailing giant Starbucks (NASDAQ:SBUX), like most stocks in recent weeks, saw a steep decline. Volatility is high in this market and it is impossible to pinpoint exact to the dollar levels of support or resistance. SBUX stock looks to have reached a significant confluence area of support where it could bounce.

Starbucks Stock Looks Solid Heading into Next Week's Earnings Report
Source: Natee Meepian / Shutterstock.com

For perspective, when I last offered a trade idea in this column on SBUX stock on Jan. 19, I opined that the stock has likely developed an important topping pattern with immediate-term downside. The stock then reached my initial profit target a couple of weeks later. Since then, due to the broader market weakness, it has literally collapsed.

SBUX Stock Charts

Source: TradingView

On the multi-year weekly chart we note that from the summer 2019 highs to this week’s lows, Starbucks stock dropped about 45%. If measured from the January 2020 highs to this week’s lows it dropped about 42%. In percentage terms alone, this is summing up to be a significant drawdown, even if we consider how overbought the stock was from the summer 2019 until February 2020.

Aside from the sharp momentum of the recent drop in the stock, it has now reached a bigger picture technical confluence area on the bigger picture charts. Note that the stock has now in a matter of weeks worked its way from the upper end of the larger up-trending channel (blue lines) down to the lower end. The lower end of this channel also coincides with previous technical resistance (now possibly support) in the mid-to-high $50s (see horizontal blue line).

Source: TradingView

On the daily chart we see this aforementioned confluence area of technical support a little better still. Given the current historic market volatility, it is important to trade in smaller size and understand that wider stops and possibly wider profit targets have to be implemented. This is to say that this confluence support area has to be given breathing room well into the low $50s.

It is also noteworthy that on March 18 Starbucks stock flashed a first real intraday seller exhaustion day in several months, where the stock rallied back strongly intraday after being sold at the beginning of trading. What is still missing for me to take a bullish trade is a so-called ‘follow-through’ buying day.

Moving Forward With Starbucks Stock

SBUX stock often displays this specific high probability candlestick pattern for entry points. I will discuss this pattern in a special webinar this Thursday, March 12. Register here.

For now, if and when SBUX stock can establish itself above the $61 area on a daily closing basis, a bullish trade with an upside target at $68 opens up. The stop loss would be any strong bearish reversal on a daily closing basis.

Learn the highest probability candlestick pattern in Serge’s webinar. Register here.


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