Nasdaq 100 component Starbucks Corporation (SBUX) has been on fire since breaking out above three-year resistance in February, gaining more than 20% through a long string of all-time highs. It has been tough for risk-conscious investors to jump on board this fast-moving train because price action has posted just two modest pullbacks so far in 2019, forcing market participants to buy high in hopes of selling higher.
Ironically, much of Starbucks' growth is coming from China right now, increasing that odds that the company will get caught in cross-currents of the escalating trade war. However, citizens of the Asian nation are just as addicted to the dazzling array of overpriced concoctions as their Western counterparts, potentially dampening the sales impact of international tensions while allowing the coffee maker to buck the bearish tide.
SBUX Long-Term Chart (1992 – 2019)
The company came public at a split-adjusted $0.34 in June 1992 and entered an immediate uptrend that stalled at $1.01 in 1994. It broke out in 1995, entering a more vertical advance that ended at $6.41 in February 2001 and giving way to a 50% eight-month haircut. That print marked the lowest low in the past 17 years, ahead of a 2003 breakout that posted historic gains into May 2006, when the stock topped out at $19.94.
A breakout attempt failed at year end, triggering a downturn that completed a double top breakdown in June 2007. Selling pressure accelerated during the 2008 economic collapse, dropping the shock within 17 cents of the 2001 low in November. That marked a historic buying opportunity, ahead of a V-shaped recovery that completed a round trip into the 2006 high in 2011.
A breakout into 2012 posted a series of new highs into October 2015, when the uptrend ended in the mid-$50s. The stock broke down from a bearish diamond pattern in June 2018, generating a selling climax that hit a three-year low in the $40s before a strong bounce reinstated support and trapped short sellers. The stock rallied above long-term resistance in November, tested new support for three months, and took off on a powerful uptrend that shows no signs of topping out. This persistently bullish action finally opens the door to psychological resistance at $100.
The monthly stochastic oscillator crossed into a buy cycle in October 2017 and shook off a lower-scale sell cycle in 2018. It crossed into the overbought zone in November and has stuck like glue to that lofty level for the past seven months, signaling an exceptionally strong uptrend. Looking back, the stock has held overbought readings for as long as a year at a time, suggesting that relative strength may continue through the fourth quarter.
SBUX Short-Term Chart (2015 – 2019)
Complex price action since August 2015 has drawn the outline of a potential Elliott five-wave rally pattern that is now engaged in a dynamic third wave uptrend. This price structure predicts excellent upside potential for patient investors willing to hold positions for a few more years. In the shorter term, the third wave looks long-in-the-tooth, suggesting that Starbucks stock will eventually roll into a counter-trend decline that lasts for more than a year.
Sadly, this isn't the best price for traders to jump on board, given huge upside since June 2018. The closest support lies at the 50-day exponential moving average (EMA) at $80 and the black trendline near $76, but declines into those levels aren't likely to ease extremely overbought technical readings after a 75% annual return. As a result, risk-conscious market players may need to sit on their hands and wait for a full-scale correction that tests the top of the multi-year breakout in the mid-$60s.
The Bottom Line
Starbucks stock is firing on all cylinders and has now lifted into the fourth slot in Nasdaq 100 component performance. Even so, taking exposure at this lofty level carries considerable risk after a year of impressive upside.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.