Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of specialty coffee worldwide. Its stores offer coffee and tea beverages, packaged roasted whole bean and ground coffees, single-serve and ready-to-drink coffee and tea products, juices, and bottled water; an assortment of fresh food and snack offerings; and various food products, such as pastries, breakfast sandwiches, and lunch items, as well as beverage-making equipment and accessories. It offers its products under the Starbucks, Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange, Ethos, Frappuccino, Starbucks Doubleshot, Starbucks Refreshers, and Starbucks VIA brand names.
Take a look at the 1-year chart of Starbucks (NASDAQ: SBUX) below with my added notations:
SBUX has formed a relatively clear up-channel chart pattern over the past 3 months. A channel is simply formed through the combination of a trend line support that runs parallel to a trend line resistance. When it comes to channels, remember that any (3) points can start the channel, but a 4th point or more confirms it. You can see that SBUX has several points of channel resistance (red) and support (green).
The Tale of the Tape: SBUX has formed an up-channel. A long trade could be entered on a pullback down to the channel support, which is currently sitting around $54, or on a break above channel resistance. Short opportunities would be on rallies up to channel resistance, or on a break of channel support.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT