A few posts back I said that I would write another posts and reach a verdict on Starbucks (SBUX). The stock has a tendency to stay overbought for a long time, but with that said, its relative strength is gaining momentum. See below. Notice how the RSI has been trending upward. If SBUX were trading sideways or downward while this is happening, I'd say it's safe to buy. However, it's tricky to make a call when the RSI and the underlying stock are trending in the same direction. SBUX's gap up after earnings saw resistance at the trend line superimposed above, and didn't form a bull-flag like I thought it would. Instead, the stock simply gapped lower the next day subsequently continued higher.
Again, to make a call in this scenario is tricky. Starbucks is approaching overbought territory, and I believe that if it hits $60, the stock will see resistance from the trend line and psychologically. I definitely wouldn't advise shorting SBUX, but I do think that a $60 handle represents a good time to sell and take profits.
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I can't say I didn't recommend this name going into earnings. But, self-inflation aside, I think that it's time to take profits in SBUX... for now. The next few days will be crucial for deciding whether or not the stock's massive run is over, or if it's just taking a breather.
It's clear that Starbucks has been a winner for quite some time (I mean, can a chart get any prettier than that?!). Yesterday, the company reported blowout earnings that sent the stock higher - close to $60.
If you're in the name right now, take profits. Here's why: While SBUX has a tendency to remain overbought for quite some time, this time may be different. I emphasize "may" because, again, the next few days are imperative for defining the trend. In late April, the stock formed a bull-flag after popping by a few percent. As I write this, SBUX has gapped up in a similar fashion. The RSI (in the bottom portion of the image) says that SBUX is overbought, and if you looks at that same peak in late April, the RSI was at the exact same percentage. In a few days I will post again to share whether or not I think SBUX has more room to run. I will be looking for lower highs and lower lows in the coming days to signal a trend reversal, and for a bull-flag to confirm a breather in the current trend. |