Starbucks: Out Of Steam Or Just Warming Up? (Technical Analysis)
by The Chartographer Contributor since 2021 / 1005 Followers
10 months ago
Summary:
Starbucks is in a battle between underlying fundamentals and overriding sentiment.
The fundamental landscape suggests a reasonable base for growth, but sentiment could impact the stock price.
The structure of the price on the chart indicates two possible scenarios, with one potentially leading to new all-time highs.
Shaiith/iStock via Getty Images
By Levi at Elliott Wave Trader; Produced with Avi Gilburt
NASDAQ:SBUX has a truly intriguing setup here in what appears to be a battle between underlying fundamentals and overriding sentiment. Which will turn the tide for the stock? For the moment, we will call this current position a ‘Hold.’ However, the nuances of our methodology are much more in-depth and can provide a greater amount of detail for the end user.
Let’s explore this further. First, please listen along as Lyn Alden, a preeminent fundamental analyst on our team, describes the current landscape for SBUX. As well, Lyn will discuss what could happen in the near term. Then, we will look at the picture as painted by sentiment and the structure of price on the chart.
The Fundamental Landscape With Lyn Alden
“After four and a half years of consolidating in price from overvalued levels, Starbucks looks like it is beginning to set up a reasonable base to build from.”
by Lyn Alden – FAST Graphs
“It’s also a warning for what can happen to otherwise good stocks when they become overvalued. Other than temporary pandemic-related issues, the company has continued to grow over this time in terms of revenue and net income and dividends, and yet the stock has been stuck in a range due to having starting the period in such an expensive state.”
by Lyn Alden – YCharts
“At 25x earnings, it’s still not exactly cheap. There’s nothing that would prevent it from stagnating to 20x earnings, for example. The price/earnings to growth (PEG) ratio is below 2x, so it meets my initial valuation criteria for a growth-at-a-reasonable-price stock. But this is very much predicated on the company growing in line with analyst expectations.
Overall, I view Starbucks neutrally. Most fundamental indicators point upward at this stage, but sentiment could easily whip the price around relative to the fundamentals.” – Lyn Alden
The Structure Of Price Speaks
I want to share with you that this is not “Technical Analysis”, as you may know it. It is not trendlines and moving averages. Over many years of diligent study, observing markets in real-time, superimposing our methodology onto price as it unfolds in front of us, we have come to appreciate that this is not a linear environment. This being the case, how could we apply linear analysis to a non-linear world? That simply would not work in reliable fashion.
So, while this may be ‘tagged’ as “Technical Analysis,” it really is so much more than this. We have a multitude of educational information available to those wishing to explore this further. In just a bit of time and with a portion of effort, you just may discover the true nature of the markets and come to understand them with greater depth.
If you are so inclined, please start with part one of the six part series authored by our founder, Avi Gilburt:
Now, for the purposes of the following, let’s remember that markets advance on 5 waves and correct in 3 waves. This basic understanding is also coupled with the fact that these same markets are fractal in nature. They display self-similarity at all degrees, or time intervals, from minutes to hours to days and longer.
What’s more, this is not simply used to explain what has already happened. It would stand to reason that if these fractals are repeating, then we would be able to use these smaller structures to project what is most likely to happen next in the larger structure. That is the true power and utility of Elliott Wave Theory when correctly applied. So, let’s do that with the SBUX chart.
by Zac Mannes – Elliott Wave Trader – StockWaves
We asked Zac Mannes to work up the two most probable scenarios given what the structure of price on the chart is currently telling us. Note that his primary path is the Orange labeled road, with a potential target that could even come close to re-testing the lows struck in the Covid washout of 2020.
However, there is another possible path:
“An alt B of (3) can hold the 87-82 region in the purple path and still holding the Oct low for now.” – Zac Mannes
OK, Zac – what does this mean? The ‘alt’ is an alternative path that Zac could see potentially playing out. How would we know that this is the case? Well, we really do want to know. Take notice that the target overhead could possibly take the stock to new all-time highs. Zac is telling us that if price holds in the 87-82 region and then turns up in a 5 wave structure and regresses in 3 waves that hold that low struck or higher than this would be a signal that we may see an important low much sooner than later.
Should price break the 82 level, then it makes it much more likely that we are headed to the 68 level or lower. It would be the structure of price on the way down that would tell us the probable target.
This Is Just A Bunch Of Double-Talk, Right?
“You guys are just putting out targets and scenarios so that anything that happens will make it look like you are right!.”
This is simply not the case. When a trader/investor comes to realize and appreciate that markets are fluid, dynamic and non-linear in nature, they will then greatly value a system that allows for this type of probabilistic analysis.
Conclusion
Yes, there are nuances to the analysis. Once familiar with our methodology, our members discover a powerful ally on their side to provide guidance and risk management in their trading/investing.
There are many ways to analyze and track stocks and the market they form. Some are more consistent than others. For us, this method has proved the most reliable and keeps us on the right side of the trade much more often than not. Nothing is perfect in this world, but for those looking to open their eyes to a new universe of trading and investing, why not consider studying this further? It may just be one of the most illuminating projects you undertake.
(Housekeeping Matters)
If you would like notifications as to when our new articles are published, please hit the button at the bottom of the page to “Follow” us.
Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in SBUX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
STOCK WAVES: Where fundamental analysis meets technical analysis for highest-probability investment opportunities! Get leading Elliott Wave analysis from our team, along with fundamental insights and macro analysis from top author Lyn Alden Schwartzer.
“Stockwaves is my bread and butter, and that’s only catching maybe 10% of the charts they throw out! I had 7-10x+ trades with SW last year, and dozens more that were “slackers” (LOL) with “only” 3-4-5x returns. Amazing!” (Nicole)
