Starbucks (SBUX) - Get Report shares could be in for a "grande" pullback if the technical indications are correct. The stock is trading about 5% above where it was a year ago, but it has been a volatile period for investors, and now important trend line support is broken and it looks like the intermediate-term direction is lower.
The weekly chart shows the stock breaking above long-term horizontal resistance in late 2014 and spending most of 2015 tracking higher. Then it began trading in a wide but narrowing range, forming a large symmetrical triangle pattern in the process. This type of contracting action reflects a building price pressure and often precedes volatile moves. There are two ways to draw the triangle uptrend line, either starting at the absolute August 2015 low or at the opening point of the "real" body of the candle. In both cases, support has been broken and the stock is in a precarious position.
Moving average convergence/divergence made a lower high in October last year in bearish divergence to the higher high in price, and the relative strength index is tracking under its 21-period average and centerline. Accumulation/distribution is below its signal average for only the second time since the 2014 low, and the money flow index which dropped below its centerline early this year and has remained under that level. These indicators reflect the continued loss of long term price and money flow momentum.
The recent volatility is evident on the daily timeframe, with the gap lower in April reversing the uptrend off the February lows and any near-term hope that the stock was going to make a higher high. In fact, the continued weakness that followed pulled the 50 day moving average under the 200 day average, a bearish moving average crossover called a death cross. Positive price action last week has caused the stochastic oscillator to make a slight bullish crossover, but the red line of the vortex indicator is still tracking above the green line and indicates that the trend remains lower. On this chart the accumulation/distribution line has reverted under its signal average, and while Chaikin money flow managed to briefly move above its centerline, it closed the week in negative territory.
There may be some follow-up positive price action this week in the stock, but the 50-day average and the short-term downtrend line in place this month are forming a zone of resistance, which should be a formidable barrier going forward.
From a fundamental perspective, Starbucks is a holding in Jim Cramer's Action Alerts PLUS charitable portfolio. "Although shares have been stuck in the mid-$50s for the last couple of weeks, we are confident the company's unmatched growth profile and brand loyalty warrant our long-term $68 price target on the stock," Cramer and Research Director Jack Mohr wrote recently.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.