
Is Starbucks Gearing Up to Cool Down Under Pressure?
Shares of Starbucks (SBUX) - Get Report have been trading in a very narrow range this month. This consolidation pattern began shortly after the stock took a heavy earnings-inspired hit back on April 22. By the close of that session, Starbucks was back below its 200-day moving average while leaving heavy supply behind in the process.
After a two-week rest, Starbucks may be heading for a fresh down leg as overhead pressure continues to build. The stock is still rangebound, but investors should be prepared for a deep pullback.
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Starbucks is far removed, at least time-wise, from its all-time highs. The stock peaked back in late October and has been drifting steadily lower since. Over this timeframe, Starbucks has put in multiple stretches of lower monthly highs, but outside of the brief February selloff, it never appeared to be in real danger. Back in early March, the pattern looked vulnerable once again, but the stock managed to rally back up to its 2016 peak by early April. Until the 6.9% earnings meltdown later that month, Starbucks was stable with strong support underneath.
Since the April 22 flush, which attracted the stock's heaviest downside trade since October 2014, the stock's moving averages have been bearing down. This pressure, coupled with a huge amount of overhead supply from March and April, will likely drive the stock lower in the near term. Investors should keep a close eye on the $52.30 area. Starbucks' April and May lows are in this area. If this level is blown out, the stock will be on its way to a retest of the 2016 low near $52.60. A hold near this key level, along with a return to oversold territory, could set up a low-risk entry opportunity for patient bulls.
From a fundamental perspective, Starbucks is a holding in Jim Cramer's Action Alerts PLUS charitable portfolio. Cramer and Research Director Jack Mohr recently wrote:
We continue to view Starbucks as one of the most compelling growth stories in the global consumer space as it is positioned for both top- and bottom-line growth through both menu and technology innovations, sustainable cost advantages and emergence as a diversified retail and consumer packaged- goods platform. Although it is already the undisputed leader in specialty coffee in the U.S., we think Starbucks still has meaningful domestic growth potential via new store formats (smaller-format express stores, drive-throughs, beverage trucks, etc.), greater peak-hour capacity, expanded food offerings, the game-changing Mobile Order & Pay platform and My Starbucks Rewards program (which engenders enviable loyalty). At a time when most restaurant players and retailers in general are struggling to find traffic growth, SBUX's recent transaction gains suggest it remains a key consumer destination, validating the significance of its brand equity.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.










