Monday, January 31, 2011

SBUX Watch

Starbucks Corp.'s (SBUX) present slide began on Jan. 26, the day earnings were released, as the company said it's coffee would cost more in 2011, and also, coincident with this report from Reuters that Brazil is on the verge of overtaking the U.S. next year as the world's largest coffee-consuming nation, bidding up the cost of beans.

SBUX lowered its earnings expectations a bit, but said that it had already bought coffee a few months into 2012, and besides, customers weren't resistant to price increases.

Today, on the fourth after the bad news on the bean front, price action on the chart shows SBUX setting up a potential reversal with a spinning top candlestick pattern.

phase pfeppstrend

I have bucks in the SBUX game. I'm still trying to find a decent exit from my holdings after the signals swung into neutral phase on Jan. 26.

Today's spinning top on the candlestick suggests that my fervent hope for a partial retracement is at hand. But the real question is, Whither coffee? As goes coffee, so goes the Starbucks.

The benchmark futures for Arabica coffee are in neutral phase, and have been since Jan. 4. Trading on Jan. 26 -- the date of the Reuters article -- was easily within the long-standing range.

Today and yesterday, however, coffee futures poked their little bean heads above the sideways level that has held since mid-December, which seems to be contrary to what the SBUX price is doing.

phase pfeppstrend

All in all, this tells me that the odds of a huge retracement are probably slim. The best I can hope for is a small bump up based on trading considerations rather than any reversal in the fundamentals.

On the other hand, the picture isn't entirely dark.

The 55-day entry/20-day exit price-channel analysis shows SBUX in neutral phase and more than 7% away from hitting the $29.45 mark that would swing it into bear phase.

Coffee futures have been in price-channel bull phase since Dec. 17 but has been losing trend since Jan. 14.

It's hard to know what to make of all of this. I think that as the U.S. economy continues to improve, people who have been pinching pennies with their coffee habit will be more likely to treat themselves, providing a counter-balance to growing coffee-habit of the Brazilians.

All in all, SBUX is still a venti in my book; I'll consider it as a reasonable bull play once the signal kicks in.

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.

No comments:

Post a Comment