Starbucks Corp. (SBUX) - Get Report is a very profitable company with promising growth opportunities in China, and yet for the last two years the stock price has gone nowhere. In October 2015 it was trading around $56 and that's where it is today. But the stock has been retesting long-term support and the technical indicators are suggesting that it could be preparing for a volatile move higher.
After making a new high in October 2015, Starbucks shares began making lower highs above what would become long-term support in the $52 to $53 area, and forming a declining triangle on the weekly chart. A break move above the triangle downtrend line earlier this year briefly made new highs, but then the move reversed direction and the stock price dropped back down to again retest the long term support zone. Since then, Starbucks shares have been consolidating in a small triangle below the $56 level, which is currently intersecting with the long-term triangle downtrend line. But now the daily technical indicators are suggesting that a breakout is coming and it could be volatile.
The daily chart shows the small triangle consolidation that has been underway for the last three months. Pattern resistance is defined by the 62% retracement level of the November 2016 low and this year's high, and also the bottom end of the July gap lower. Those mutual levels of resistance are being tested in today's session. Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator, and is tracking back above its center line on both time frames, which is a sign of positive price and short term trend direction.
The Bollinger bandwidth indicator is reflecting a high level of price range contraction, and periods of low volatility like this have, in the past, been followed by periods of high volatility. This was the case before the spike in the stock price in May and the drop in the stock price in July. The Chaikin money-flow reading is neutral and that will have to improve to support a rally going forward.
Starbucks is a buy after an upper candle close above the $55.50 triangle resistance level. The pattern price projection, measured by taking the height of the triangle and adding it to the breakout level, targets the $58 area. This would take the stock price back above the 50% retracement level, close the July gap, and recapture the 200 day moving average. These positive technical developments could breathe new life into Starbucks shares.
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The author is an independent contributor and at the time of publication had no position in the stock mentioned.