Don't Boycott Starbucks -- but Don't Buy the Stock Yet Either

Starbucks' stock chart is predicting a low-risk buying opportunity for investors willing to wait for it.
By Gary Morrow ,

Hold on to your plain red cups. Starbucks' (SBUX) - Get Report  stock chart is predicting a low-risk buying opportunity for investors willing to wait for it.

Starbucks has been holding in a tight consolidation pattern just below its 52-week highs for over two weeks. This sideways action began shortly after the stock reached fresh October highs on Oct. 23. Starbucks spent the rest of the month bumping up against the $64 area but was unable to penetrate it. In November, the consolidation has continued, but the setup has taken on a more bearish tone.

In the near term, a deeper pullback will be the likely result -- and with it a low-risk entry opportunity.

The powerful run off the September lows has pushed SBUX well into overbought territory. The stock's weekly moving average convergence/divergence reached its highest overbought reading late last month, while the daily MACD indicator is just beginning to come off its highest reading in at least 10 years. It's very likely this condition will provide a significant headwind through the rest of the month. Starbucks could certainly move higher from current levels, but the gains will be very limited. For bullish investors, this all adds up to a more cautious stance until a healthy pullback develops.

In early October, Starbucks left behind layers of solid support. The zone investors should focus on runs from the $59.50-to-$58.50 area. The top band of this key zone includes the stock's July, August and September highs. The stock's 50-day moving average, as well as the one-third retracement level of the rally off the September lows, marks the lower band. A fade down to this zone on continued light selling pressure should be viewed as a low-risk entry opportunity.

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Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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