Does that look a little scary to you as an investor? It should, like it or not, I believe this will make a beeline to that first level of support on this monthly chart. This is how investors and fund managers get caught. The monthly chart holds the most merit for me as a chartist. When I hear fund managers and famous investors touting Starbucks after a 5 year 1100% run; I know it is time to take a pause and wait. There will be a much better entry point in the future for this great company.
I do not believe Starbucks deserves to trade anywhere close to the current multiple that the price reflects. With a market selloff, comes margin calls. There is nothing worse than getting a margin call at exactly the point where you want to be buying; but again and again it happens to individuals and institutions. An important note to remember here: there are investors sitting on huge profits that will continue to sell as this goes lower.
Below is a 250 day chart. You can see I drew four levels of light support, I expect the stock price to drop down and touch those lines, then bounce around a little before going lower Why? Because this is how the market works. Testing and retesting like an out of control teenager. There are far too many believers and way too much bullish sentiment around this stock. Mr. Market wants your money.
(click to enlarge)
Let's take a look at the coffee futures chart. Here it is a month later and it does indeed look like a correlation exists between the price of coffee futures and the share price of Starbucks. Investors will have to wait and see if this trend continues. Recent storms in Central and South America have damaged crops and prices for Arabica beans are expected to rise.
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