Tuesday, March 06, 2007

SBUX - Part II

Maybe it's me - maybe it's because I don't particularly like their product - maybe I think their business model is way overdone and probably old - already - maybe it's because I don't like paying more than 2 bucks for a cuppa joe - maybe it's because I like a cuppa joe and not a lattemochamotherhuncher - but this chart just doesn't look good to me - right now.

OK - you are looking at a monthly chart - that's because the folks over at JP Morgan said 3 months to a year and when you are looking for short term trades you use dailies (or less), swing trades you use weekly, and long term relationships - monthly. And this is going to be a long term relationship.

Let me count the ways.

First - it's been here before - several times. That is never a good sign especially in a company who is selling a commodity that you can buy just about anywhere - I mean Mickey D's just got on the flavored coffee bandwagon - how many more hints do you need that a fad is over? No matter how many stores SBUX can open Mickey got them beat.

Second - this is the first time it has closed below the 21-EMA - not necessarily a bad thing but not too good either.

Third - it spent most of '05 declining, got a second wind and broke down from there.

Fourth - The ATR at this level can't be sustained - that we know - but it has been here for a long time and since it crossed 3.00 there have been more red volume bars than black ones. If you look at the ATR in relation to the shank of the growth spurt (Apr 03 - Dec 04) you see that it is almost declining. Towards the end of '04 it begins to go up and that appears to be the beginning of the end. Volatility is a funny beast - there is only high or low and most often you want to begin a relationship low or when it is declining and the stock is rising.

Fifth - I will try to never buy a stock off a rounded top and it doesn't take 20-20 to see that this is rounding - and not only that but it also appears to be a twin-peaks set-up - or a natural short.

If I were inclined to buy it for an investment I'd put the position on when the ATR came back below 3.50 and the stock closed over the EMA 21 (on the monthly charts). But even so I'd put a very tight (2.5 - 3%) stop on it until it crossed 33 or 34 again. In other words I'd want to see a breakout before I bought a breakout. If it did cross 34 again with a declining ATR I'd be inclined at that time to double up.

And that's my take from a chart perspective.


Bullish Jim said...

That's very helpful. Thank you.

Anonymous said...

Instead of a warm cuppa SBUX, how about a frosty mug of BUD? Gapped-up today, closed well, and formed a nice BOB on the daily chart (Thanks again for enlightening me on those). Wait for the crossover on the daily or scale-in on a break of today's high? No matter, I'm a Guiness man myself!

Enjoy your evening.



Where's part 3.