The Deipnosophist

Where the science of investing becomes an art of living

My Photo
Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

18 April 2007

Still perking?

One reader asks...
Why has everyone moved on from Starbucks? Is growth for the company really over? It seems that it's got a number of strong products - breakfast, sandwiches, etc. - that should really push same store growth and I think it plans to open tens of thousands of stores around the world over the next few years. It would seem they have the pervasive, worldwide reach to continue their impressive growth over the next few years. If you ask me, this might be a stock trading at tremendous value after getting beat down all year.
I agree pretty much with your argument; in fact, and even though the share price is lower, I might have been too hasty when I stopped out at $33 in late-February. However (and you knew there had to be a however!), the company could be hitting the wall of its S-curve. You can view this moot point in the chart below...

[click on charts to enlarge]

Note the potential double top at $40. ("Potential" becomes confirmed with a breach of the 8.3.06 interim low at $28.72.) Note, too, the declining price trend of the past 5 months that causes the crucial simple moving averages to trend lower. And note that the share price is beneath the two moving averages. This negative trend has caused its leadership to falter; its Daily Graphs relative strength ranking is a measly 9. Not good; Wall Street seemingly distributes these shares as rapidly as possible.

Is there a bullish argument? Yes, that the company does not butt its head against the upper limits of its S-curve. And that the chart is, in fact, bullish. To wit...

The viewer can perceive obvious crucial support at ~$29-28/share. Why? The past 18 months could be a high level consolidation ($40 to $28+) following the breakout in early-November 2005. This breakout and subsequent base are seen better by viewing the daily basis chart. (Not shown.) Too, accelerated up trend line #2 lies now at ~$29.25. Thanks to these two items, the stock found support last month (14 March reversal). A second item of bullish note would be an upside breach of the declining 50-day simple moving average; this could occur soon.

Thank you for your question, which has prompted me to re-think my (non-) position; my recent bearishness re Starbucks/SBUX might be an error. We shall know soon.
-- David M Gordon / The Deipnosophist

Labels: ,

who's online