Starbucks Is Perking Up -- Here's How to Trade It Now
After over a week of dull post-Brexit action, shares of Starbucks (SBUX) - Get Report are beginning to perk up. The stock finished Tuesday with a 2% gain on well above average volume. This powerful rally pushed the stock to a new July high.
Starbucks still has challenges ahead, but a new rally phase may be on the way.
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Back on April 22, Starbucks was hit hard after a disappointing second-quarter earnings report. The stock fell nearly 5% that day, leaving behind a very ominous monthly double top. Starbucks also fell well below its 200-day moving average that day, adding substantially to the overhead pressure. Three weeks later, the stock appeared headed for a retest of its 2016 lows, but with selling pressure running light, the selloff fell short of the February lows. Starbucks stabilized just above $54 and remained in a narrow range just above that level for the next four weeks.
During the Brexit flush, Starbucks reached a new post-earnings low but still had the strength to hold above the 2016 lows. During the sharp rebound that followed, the stock put in a divergent low in its daily moving average convergence/divergence indicator. With this pattern in place, and a soiled layer of support near $56 underneath, investors should take a more positive view of the action.
In the near term, Starbucks bulls should consider the stock a low-risk buy above the $56 area. A close back below $55 would indicate that more basing is ahead. If shares can power past the flat-lining 200-day moving average, which rests just above $58.50, it will have plenty of room to run.
Of note, Starbucks is scheduled to report its next results on July 21 after the bell.
Starbucks is a holding in Jim Cramer's Action Alerts PLUS charitable portfolio. Cramer and Research Director Jack Mohr recently wrote:
Shares stalled ... after analysts at Cleveland Research suggested third-quarter sales trends appear likely to come in below expectations. We prefer to take the long-term view and are excited about SBUX's recently retooled loyalty program that is encouraging further mobile adoption and larger ticket orders. Ultimately, we would welcome the opportunity for the company to head into its earnings results on lower expectations than normal, as its strong results wouldn't be met with such criticism.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long SBUX.