Starbucks (SBUX) - Get Report is in a tough situation. While most of its revenue comes from the U.S., China is becoming a larger and larger portion of its business. That’s why the stock has been under pressure this week, slipping 5.5% over the past few trading sessions as the coronavirus spreads in China.
The virus has resulted in the closure of many businesses, and will affect Starbucks, Disney (DIS) - Get Report, Luckin Coffee (LK) - Get Report and many others. One analyst even said Starbucks is the most exposed stock due to the coronavirus.
Complicating matters will be earnings, which Starbucks will report on Tuesday after the close. The most recent quarter, which ended Dec. 31, should be fine. But management’s outlook and commentary on the China situation will be one for investors to watch closely.
Trading Starbucks Stock
Even before the coronavirus news began dominating the headlines, Starbucks stock was struggling with the $94 level. A breakout over this mark might have sent the shares to the $100 mark, which it almost hit in July.
Now hovering in the upper-$80s with moving-average support just below, Starbucks would typically be setting up as a great trade.
Below $87 and it’s a short or a no-touch, while over $89.50 the bulls could look to squeeze SBUX higher.
The only problem? Earnings. When sentiment is strong for Starbucks stock, earnings can act like gasoline on the fire and drive the share price higher even on lackluster results.
When sentiment is poor, though, even great figures may result in little upside.
Right now, sentiment seems mixed. From an investment perspective, investors might consider nibbling on the latest dip. From a trading perspective, it’s too risky to make a play ahead of earnings. Waiting until the results are reported will enable us to trade with a clear head, no bias and more clarity.
Here’s what I’m watching for:
A break below the 200-day moving average could send Starbucks stock down to the $82-to-$84 region. I wouldn’t mind picking up some shares at the bottom of that range, and even in the $81-to-$82 area, pending the situation in China.
On the upside, I want to see whether Starbucks can reclaim the 20-day moving average and prior uptrend support mark (blue line). Above the 20-day puts the prior $94 breakout level on watch, with a move to $98.85 possible.