The S&P 500 rose almost 5% on optimism over the coronavirus pandemic showing some form of leveling off. One would have likely assumed that the rally in Starbucks would at least be in-line with the broader market, if not outperforming it.
However, a downgrade from J.P. Morgan has soured the mood to an extent. After downgrading Starbucks to neutral from outperform, the analysts assigned a Wall Street-low price target of $55.
From current levels, the target implies a little more than 15% downside. The sentiment is rational, as Starbucks had to temporarily close many of its locations in the U.S. and China. They argue that spending behavior in the U.S. will be altered and take a long time to recover.
Business will surely be impacted, but to the point where investors should sell their stock? Not necessarily. Based on videos like this, it seems like Starbucks will be fine once the dust settles and lockdown orders are lifted.
Let’s look at the charts.
Trading Starbucks Stock
I like the long-term story of Starbucks. Generations young and old enjoy the brand, its financials are solid and growth remains strong. However, the charts have suffered some damage.
For more than three years, Starbucks stock was stuck in a range, trading between $47.50 to $50 on the downside and $57.50 to $60 on the upside. In the fourth quarter of 2018, resistance finally gave way, with shares bursting higher and rallying all the way up to $99.
Shares were taking a much-needed pause after such a rally, but were hammered once COVID-19 came to light. From its 2020 peak to the March low, Starbucks stock fell more than 46%. It tagged former range support near $50 a few weeks ago and has since bounced back, reclaiming prior range resistance, as well as the 200-week moving average.
Should the 200-week moving average hold as support, look to see if Starbucks can rebound to the 100-week moving average, which most recently acted as resistance. If the 200-week moving average gives way, $57.50 could be in play.
Long-term buyers would love a shot at buying Starbucks on a dip to $50 again, although at this rate the technicals would need to deteriorate further. As of now, we’re just not there yet. But in a market like this, anything is possible. For now, keep an eye on the 200-week moving average. Starbucks may be struggling in the short term, but this is not a name I’d want to bet against for the long term.