Starbucks Stock Must Negate This Bearish Pattern To See Further Upside
Starbucks Corporation (NASDAQ: SBUX) gapped down Sept. 15 in sympathy with Yum China Holdings, Inc (NYSE: YUMC) after it provided a business update and in it announced a negative impact from the COVID-19 Delta variant. Yum China forecasts its profits could be reduced by 50% to 60% for the third quarter due to lockdowns in a number of Chinese provinces.
On Monday Stifel maintained its Buy rating on Starbucks but lowered its price target to $130. If Starbucks were to reach the target price, it would still be a new all-time high for the stock.
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The Starbucks Chart: This week Starbucks has been working to erase some of the 8% decline the stock took between Sept. 10 and Sept. 20. On Wednesday Starbucks was attempting to break up over a resistance level at $113.45, but rejected and wicked from the area.
The decline paired with the reversal to the upside has created a bear flag on Starbucks' chart. For the flag to be negated, the stock will need to regain the eight-day exponential moving average (EMA) as support.
Starbucks has two overhead gaps and because gaps fill 90% of the time, it's likely the stock will trade up to fill the ranges in the future. The first gap is between about $117 and $118 and the second gap has a range between $123.44 and $124.21.
Starbucks is trading below the eight-day and 21-day EMAs with the eight-day trending below the 21-day, both of which are bearish indicators. On Monday Starbucks tested the 200-day simple moving average as support and has held above the level, which indicates overall sentiment is bullish.
Bulls want to see sustained bullish volume pop Starbucks back up above the $114 level. If the stock can regain the level as support, it has room to regain the eight-day EMA and make its way up to fill the closest gap.
Bears want to see Starbucks continue to reject its overhead resistance and then for the bear flag to be recognized, which could drop the stock back down below a support level near the $111 mark. If Starbucks were to lose the level as support, it would also fall below the 200-day SMA which could push the stock down toward the $107 area.
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