Chart Of The Day: Starbucks Stock Momentum Could Fade On Bad Omicron News
Investing.com | Dec 07, 2021 14:08
Shares of Starbucks (NASDAQ:SBUX) experienced a case of what looked like caffeine-fueled whipsawing last week. On Wednesday, the global coffee chain's stock dropped 0.9% but the following day it rebounded with a 2.5% jump.
Unlike earlier volatility the stock experienced at the end of October and into November when shares plunged 6.3% after quarterly earnings beat forecasts but missed on sales, this past week's frenzied flip-flopping was tied to Omicron news. As fears of the newly discovered COVID variant fade, the stock has been on the rise.
However, though fundamentals may be looking up, bulls have a variety of technical obstacles ahead of them. Therefore, we predict that the first new, negative Omicron headline will send stocks in general—but SBUX in particular—into a rapid selloff.
The price of the shares has been trading in a falling channel, which places the onus on bulls. Each rally is considered a correction within the underlying downtrend and therefore, a short-selling opportunity.
Note: this is true only for traders who know what they're doing. They're aware of which signs to look for in order to tilt the odds in their favor. They also know how to write a trading plan that ensures they're on the right side of statistics over time, when applied consistently.
The stock's 50 DMA has crossed below the 200 DMA. The last time this occurred it erased a third of the Seattle-based coffee purveyor's value when COVID-19 first became a factor globally as well as for financial markets.
However, we're not recommending traders rush in with shorts. The stock may be forming an H&S bottom since mid-September. That will be complete with penetratiion the $116.00 level, where the potential neckline resides.
However, we expect any negative Omicron news to pressure the stock lower, which could then complete a massive top.
On the weekly chart, the trading pattern we consider a potential H&S bottom is the right side of a possible, much larger H&S top.
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The price found support above the 50 WMA, which sent it higher, for now.
The MACD—a price-average based comparison indicator—and the RSI, measuring momentum, are both about to test resistance. The MACD provided a negative divergence, falling between April and July even as the stock hit some peaks. The RSI topped out mid-August and has been finding resistance ever since.
Does the RSI predict the price will follow suit? We wouldn't go that far.
The RSI monitors the relative strength of momentum. All it says is that the condition could be ripe for a price reversal. It means traders should anticipate such a potential move and keep an eye on the stock in order to move quickly.
h2 Trading Strategies/h2Conservative traders should wait for the price to make a new low below the Oct. 29 trough to consider a short, or wait for the stock to create a new high above the July record in order to contemplate an extended position.
Moderate traders would be content with a high above the Nov. 5 peak or a close below the Dec. 1 trough.
Aggressive traders could short a 2.3% increase in premarket trading toward a confirmed hourly hanging man, below the Nov. 25 resistance. However, a coherent trading plan is key. Here's an example:
Trade Sample – Aggressive Contrarian Short
- Entry: $116.00
- Stop-Loss: $117.50
- Risk: $1.50
- Target: $108.50
- Reward: $7.50
- Risk-Reward Ratio: 1:5
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