Starbucks Corporation (SBUX) ended a steep correction to a three-year low in June 2018 and turned higher in a relief rally that accelerated into 2015 resistance after the company reported an unexpected sale surge in November. The shares have been hovering near that price level for three months, carving a narrow trading range, while accumulation has surged to a two-year high. This relatively quiet price action raises the odds for a major breakout that gathers momentum into the new decade.
January's fiscal first quarter earnings report triggered a 3.6% rally that failed to clear resistance, but weekly and monthly relative strength readings continue to fire on all cylinders, supporting higher prices. However, a positive catalyst or final pullback may be needed at this point to prime the pump, with a decline into the 50-day exponential moving average (EMA) offering a potential buying opportunity. Even so, the technical outlook will remain bullish as long as the stock holds 200-day EMA support near $60.
SBUX Long-Term Chart (1992 – 2018)
The company came public in June 1992 at a split-adjusted 34 cents and entered an immediate uptrend that stalled at $1.01 in 1994. It cleared that resistance level in 1995 and stair-stepped higher into the new millennium, finally topping out just above $6.00. The stock got cut in half after the internet bubble broke, bottoming out after the Sept. 11 attacks in 2001 and posting a new high in 2003.
Starbucks shares performed well during the mid-decade bull market, lifting into the upper teens in 2006. That marked the highest high of the decade, ahead of a downtrend that accelerated during the 2008 economic collapse. The stock gave up all gains posted in the five-year uptrend during that period, finding support 16 cents above the 2001 low, while the subsequent bounce unfolded in a V-shaped pattern that reached the prior high in 2011.
An immediate breakout caught fire, tripling the stock's price into the October 2015 top at $64.00, which also marks the price level in play after the 2018 rally. A sell-off into the second half of 2016 ended in the lower $50s, establishing a trading range, ahead of a failed 2017 breakout attempt. It violated range support in June 2018, but bulls remounted that level a month later, setting off a buying signal, ahead of a rapid advance into multi-year resistance.
The monthly pattern looks like a breakout, but the rally ended when it crossed above the 2015 high and completed the fourth point in a rising channel (red lines). This suggests that range-bound action remains in force while the bull-bear conflict digests selling pressure at this level. A high-volume advance into the $70s is needed to confirm a breakout with this price structure, which is something that hasn't happened after three months of testing.
SBUX Short-Term Chart (2017 – 2019)
The stock entered the November gap in December but failed to fill the last point, while the 200-day EMA has risen into the fill level. This exposes price action to a second trip down to $60 or so, but a higher low at or around the 50-day EMA would go a long way in completing the three-month trading range pattern and supporting a breakout. Also, note how the stock will break the black trendline of higher lows if a decline carries into the gap bottom, setting off bearish signals that are likely to increase volume and volatility.
The on-balance volume (OBV) accumulation-distribution indicator posted a multi-year high in November and turned lower in a minor distribution phase. Buying pressure into early February has failed to reach the prior high, but there isn't enough data to signal a bearish divergence. As a result, broad technicals continue to favor bulls and higher prices as long as pullbacks hold the 200-day EMA.
The Bottom Line
Starbucks stock is holding close to 2015 resistance, raising the odds for a major breakout that targets the low $80s.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.