1/8/2017 – Starbucks (SBUX)
Starbucks (SBUX) continues its growth, even as Howard Schultz announced his resignation as CEO of the company. When a decorated CEO that helped to turn the company around from its financial "woes" leaves, the short-term affect is usually nominal. But longer-term, investors may be in a "wait and see" approach.
Take a look at Apple when Steve Jobs left. Its share price kept ascending, at least for the shorter-term. Then Apple entered into a longer consolidation period when investors were analyzing the job that Tim Cook, the new CEO, was doing. I wonder if Starbucks couldn't be going through the same thing itself. Let's review some charts are find out.
This first chart is a 2 year weekly candlestick chart for Starbucks (SBUX). This chart reviews the $50 price target I had calculated previously for its share price. The Fibonacci Extension Tool was used to calculate the price target.
The share price for Starbucks (SBUX) fell just shy of my $50 price target during its correction. This makes me want to emphasize one very important point when using technical analysis. Never rely on just one signal or indicator. Also never rely on just one chart view.
If you were waiting for SBUX share price to reach the 100% Target Line from the Fibonacci Extension Tool, you might still be sitting on the sidelines. However, if you were also monitoring the daily chart, maybe you would have noticed that SBUX's share developed a Piercing candlestick pattern after falling just shy of the $50.27 target (see the next daily candlestick chart).
Starbucks (SBUX) - Short Interest
The next chart is a 1 year daily candlestick chart to look at the reported short interest totals over the last year. The thing that stands out to me the most is the reduction in the short interest totals during the most recent uptrend. It appears a lot of the uptrend can be attributed to "short covering". Short covering is the term used when someone that has previously sold shares of the stock short go out into the marketplace and repurchase those sold shares to close out their short position.
The decreasing short interest totals over the last couple of reporting periods indicates to me that short selling should not be a factor in holding down Starbuck's share price during any attempted rebound and new uptrend.
After a downtrend that lasted a year and a half, Starbucks (SBUX) developed a Piercing candlestick pattern on November 4, 2016. This was the day after it reported its most recent earnings report and the day it reached the low of $50.84. The Piercing candlestick pattern developed on significant buying volume that was greater than the previous candlestick's volume.
While waiting for Starbuck's share price to reach the 100% Target Line from the Fibonacci Extension Tool on the first chart, the Piercing candlestick pattern that developed right above the 100% Target Line indicated that its share price Since this candlestick pattern developed right above the 100% Target Line from the Fibonacci Extension Tool, it was a signal that SBUX's share price might not reach its final, anticipated target price of $50.27.
Starbucks (SBUX) - Elliott Wave & Fibonacci
Let's take another look at the most recent uptrend and current correction on the same 1 year daily candlestick chart. The uptrend that started November 4, 2016 after the development of the Piercing candlestick pattern can be clearly divided and labeled as a Bullish Impulse wave pattern (Waves 1-5). The question is, what sort of corrective wave pattern is SBUX forming? Wave A reversed nicely at the 50% Retracement Line from the Fibonacci Retracement Tool.
Does the corrective Wave B finish around the inauguration date? Seems pretty plausible to me. It also seems plausible that Wave B terminates around the overhead resistance area from the Falling Window candlestick pattern.
If you are long shares of Starbucks currently, the overhead resistance area represents a higher probability trading area. Trim some of your long shares as SBUX's share price reaches the overhead resistance area ($58.25 - $58.50 area). Repurchase those shares as the share price re-tests the low set by Wave A. The repurchase area would be the $53 - $55 area.
The trade set-up that would give me the most confidence entering into a new position is this - Wave C re-tests the low from Wave A before its next earnings report. Wave C finds support around the bottom of Wave A. If this is the case, I would feel comfortable taking a risk that the earnings report is going to be favorable. Any other set-up should be approached with a little more caution.
Starbucks (SBUX) - Summary
After a correction period that lasted over a year, Starbucks (SBUX) share price appears to have started a new uptrend after the development of its fist new Bullish Impulse wave pattern. SBUX is correcting this new Bullish Impulse wave pattern. If you missed a scale-in opportunity around the $51 area before this new uptrend started, you will want to place Starbucks (SBUX) on your "watchlist" for the next couple of weeks. Monitor Starbucks (SBUX) share price on a daily chart and wait for the re-test of Wave A's bottom. A successful re-test could stop either slightly above Wave A's bottom or slightly below it, depending upon the type of corrective wave pattern that is developing.
After Wave B completes, SBUX's share price should start to pull back again. During this pullback, expect a re-test of Wave A's bottom. If you see a possible price reversal taking place above the bottom, a scale-in purchase can be made. If you were a little early and the share price then pushes below Wave A's bottom before rebounding, another scale-in purchase can be made at this lower level. Save the last 1/3 scale-in purchase once the new uptrend appears to be firmly in place.
The initial upside price target for any Starbucks share purchased is its previous high of $64. There can be upside potential after that as well, but the let's worry about getting SBUX's share price back up the the $64 area first.