Starbucks (SBUX) - Get Report has been a serial outperformer over the long term, besting the S&P 500 by over 350% since the 2009 "generational" low. The inexorable climb higher has not been without periods of consolidation, and the stock has been going through a particularly long one over the last 52 weeks.
This time, Starbucks might not resolve to the upside as it has in the past. What looks like an impending pattern breakdown on the chart could initiate an atypical pullback in the stock price.
The eight-year daily chart shows the long-term strength in the stock but also highlights periods of consolidation along the way. They begin with what looks like a small decline in the summer of 2010 but is actually a 20% move, followed by a larger-percentage consolidation of longer duration in 2012. In 2013, a triangle pattern developed that lasted over a year. It is interesting to note that these periods of consolidation appear to have a 458-day cycle, and the stock made an all-time high last year at another cycle inflection point.
Since that point, it began making a series of lower highs and established horizontal support, forming another triangle pattern. It is the integrity of this pattern support that may be in jeopardy of failing.
The shorter-term daily chart shows the recent triangle pattern in detail, with the downtrend line currently in the April gap zone, which has yet to be filled, and horizontal support in $52.25 and $53.15 area. On this timeframe, the relative performance graph shows the nearly 13% underperformance of Starbucks over the last 52 weeks relative to the broader market average.
Moving average convergence/divergence made a bullish crossover last month and is tracking lower and below its center line, and the accumulation/distribution line has crossed below its 21-period signal average, reflecting selling pressure. This selling pressure has accelerated this month and taken the stock price back down to the support zone.
This is a logical place for it to hold, but it is the recent rate of decline, an increase in overall volume and negative money flow, as well as Monday's close near the low of the session, that suggest this retest of support will fail. A triangle pattern breakdown projects a target price in the $42.50 area.
Shares of SBUX continue to lag as shareholders struggle to accept the reality that the days of double-digit or high-single-digit comp growth are over. Thankfully, the new growth reality remains differentiated and lucrative: consistent mid-single-digit comp growth driven by innovation through continuously improving technological capabilities and customer loyalty, coupled with among the most proven management teams in the market.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.