Tuesday, February 22, 2011

SBUX Watch

Caffeine-pushers Starbucks Corp. (SBUX) moved to price-channel bull phase on Friday, but today, in common with every issue on my list save one, immediately declined to well below the breakout level.

(Of the stocks I'm tracking, only PM -- Phillip Morris -- went against the trend, continuing to rise as it has since its bull breakout on Feb. 15.)

SBUX is a high-return low-debt stock -- the sort of growth stock that at first glance makes Warren Buffet salivate. However, it has been stuck in a sideways range since early December, and previous bull signals on the price-channel chart have failed to generate enough mo' to cause SBUX to break out of that range.

The more volatile technical analytics have been whipsawing madly, a sure sign of a stock going nowhere. The most recent phase change came with today's price decline, which has traversed 3.2% intraday and brought the stock from bull phase to neutral.

phase pfeppstrend

With a return on equity of more than 28% and a debt/equity ratio of a mere 0.14, SBUX is an attractive play. Institutional ownership exceeding 74% adds some icing to the cake.

Sales and earnings per share have grown for nine of the past 10 years.

Also, the stock pays a 1.6% dividend -- not spectacular but not shabby either.

On the other side of the balance sheet, SBUX is selling a non-essential product in a very competitive field, and it relies on a commodity subject to wild price fluctuations. In combination, it means that when the price of beans goes up, SBUX is limited in how much of the additional production cost it can recover from its customers.

Also, when people see a Starbucks on nearly every corner -- and I've seen that in cities ranging from Salem, Oregon to Fukuoka, Japan -- they just don't feel real good about going into buy a cuppa. Whatever coolness SBUX once had has wafted away on the steam from the expresso machine.

SBUX has lots of room to grow on the upside. Beyond Friday's swing high, the next major swing high was in November 2006.

Reversal Levels
  • $40.01, +21.4% (nov. 2006 swing high)
  • $34.03, +3.2% (friday's swing high)
  • $32.97 --- You are here.
  • $32.91, -0.2% (20-day moving average)
  • $32.73, -0.7% (50-day moving average)
  • $30.75, -6.7% (jan. 31 swing low)

SBUX is subject to the price-channel two-day rule. Absent an astounding reversal, it will close today well below the $33.78 breakout level. A close below that level on Wednesday would move the stock back into neutral phase.

The average directional index (adx) has turned down today, which is not a good sign for continued rise.

symbdayblevelstopadx ≥40?2-day?
SBUX feb18 $33.78 $32.77   x

SBUX has been on the rise since December 2008, and the monthly chart analytics reflect the maturity of the trend

Monthly chart
phase pfeppstrend

Bottom line: I like SBUX as a bull play, but today's massive pullback, even if it was in lockstep with most stocks, is enough to keep me out for now. I want to see SBUX survive the two-day rule and return to its $33.78 breakout level before opening a position.

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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