Thursday, January 27, 2011

SBUX Watch

Bad news/good news. The coffee house chain Starbucks Corp. (SBUX) showed a 25% upside surprise when it released earnings after the close on Wednesday. The price had already dropped, prior to the announcement, and opened down still further today because the company foresees some weakness.

The price, however, has added to the good news by retracing much of its decline.

On Wednesday I wrote of the earnings announcement, "It will be case of immense gratification or gross disappointment, almost instantly." As it turns out, it has been a case of both.

phase pfeppstrend

I opened a position on SBUX as a price-channel play, independent of earnings. Although my first reaction to the contrarian price drop was in the finest Jim Cramer tradition: "Sell! Sell! Sell!", I'm setting that aside in the face of the strong retracement of that decline.

The stock remains in bull phase on the pfe/pps analysis, above, and also on the less sensitive 55-day/20-day price channel analysis.

The price hit a swing high on Tuesday as part of a lengthy price prise that began in March 2009 and has been interrupted only by a single three-month decline. The most recent swing low, a minor one, was on Jan. 6.

Reversal Levels
  • $33.78, +1.4% (swing high)
  • $33.32 --- You are here.
  • $32.78, -1.6% (20-day moving average)
  • $32.25, -3.2% (50-day moving average)
  • $31.79, -4.6% (recent swing low)

On the slow-trading chart, SBUX has been in bull phase since October 2009.

Monthly chart
phase pfeppstrend

Today's decline took SBUX within 26¢ of the lower 20-day line of the price channel, $31.79, a level that would have forced a sale. However, the retrenchment has brought the price within 33¢ of the upper 55-day line, $33.78, a level that positively glows with bullish optimism.

The confirming adx has tipped to the downside. However, it is below 20, and therefore has no trading significance.

A correction: In my analysis on Wednesday I wrote that Tuesday's break above the 55-day upper line of the channel was a bullish entry signal. That was a misreading the chart.

SBUX in fact has been in price channel bull phase since Oct. 12, 2010. The current stop/loss is the lower 20-day line, at $31.79.

I'm finding the dual price channel system that I'm using, with its elaborate exit rules, to be fairly complicated to read, unlike most of the systems in my toolkit. However, it will be worth the learning curve if it provides protection from the whipsaws that tend to erode my trading capital.

Table Abbreviations:
  • pfe - Location of the polarized fractal efficiency line.
  • pps - Person's Proprietary Signal mode.
  • trend - Trend of the polarized fractal efficiency line.

Key to the PPS/PFE tables
phase bull phase
bear phase
pfe +100 and above
+50 to below 100
0 to below +50
below 0 to above -50
-50 to above -100
below -100
pps bull confirmation
bear confirmation
trend uptrend
no trend

More on the PFE/PPS analysis

Read a detailed explanation of the analytical tools and how they’re used, including trading rules.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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