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Twitter Starbucks (Nasdaq: SBUX) appeared on my bearish scan on Friday night and when you look at the daily chart, you can certainly see why. The stock is tremendously overbought on the daily stochastic readings and it is approaching a downward sloped trendline that connects the highs from November and March.
Based on what I saw on the daily chart, I started compiling the sentiment data and what I saw was a very low sentiment composite score (5.64). I could have stopped there and concluded that the scan was destined to be right and Starbucks stock was in for a bearish period in the weeks ahead. However, I didn’t stop with just this information. Instead I decided to take a look at the weekly chart as well.
What I found on the weekly chart was intriguing. The recent downswing that is reflected by the trendline on the daily chart had caused the stock to fall below its 52-week moving average and had caused the 13-week moving average to cross bearishly below the 52-week. Once again, this information was pointing to a pullback for Starbucks stock. However, if you look back at the second half of 2012, we see that the stock went through a similar chart pattern. I have circled the time in question.
In both instances, we see the stock fall below its 13-week and then remain below it for several months before rallying and making a brief move above the 13-week. The stock then drops back down and at the same time the 13-week moves below the 52-week. The stock then rallies back above both the moving averages. Now, we will have to wait to see how it plays out this time, but in 2012, the stock rallied from the $43-$44 level to over $81 just over a year later. If the stock were to make a similar percentage move this time around, the stock would be over $125.
I mentioned the sentiment toward Starbucks stock was leaning toward the bullish side as evidenced by the low sentiment composite score. Normally this would automatically keep me from looking at making a bullish play on a stock, but in this case I decided to look back at the sentiment readings in 2012 to see where they were then.
The current short-interest ratio is 1.90. Believe it or not, it was also at 1.9 in September 2012. The current put/call ratio is 0.86. The put/call ratio back in 2012 was right around 0.80. The put/call ratio has just gone through a consolidation between 0.8 and 0.9. In 2012, it went through a similar consolidation between 0.65 and 0.80. Just before the rally started in the company’s stock in 2012, the put/call ratio spiked higher in late October that year. Could we see a similar spike later this month when the June options expire?
At first glance I would have said to stay away from Starbucks stock or to short it, but after delving deeper into the information, I think any dip in the stock over the next few weeks should be viewed as a buying opportunity. The similarities between the two periods are uncanny. Will we see an 85% gain this time around? Who knows, but even if we see a 50% move I think you would be happy as a Starbucks stockholder.
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