In 2012, Starbucks (SBUX) made a career high of $62.00 but has since come off the top to hunt for demand. Is the uptrend over for SBUX?
READ THE GAPS
The gaps in SBUX have given clues and direction that traders can follow.
SBUX has made my morning gap list several times in 2012 and has provided some really nice intraday trades.
PSYCHOLOGY BEHIND THE GAPS
On April 27, 2012, SBUX gapped down (igniting gap down) from $59.00 to $48.20 and started a daily downtrend. The gap proceeded to unwind all of the investors and then began a new trading range of $55.00 to $50.00. SBUX traded in this range for May, June, and July to bring price consolidation.
On July 27 SBUX gapped (continuation gap down) under the price range of $50.00 and came into test the weekly uptrend line at $43.00.
BOTTOM LINE
We know two things now from this analysis. First, demand exists at $43.00 and second supply exists at $50.00 (Level 1 Supply). Knowing these two areas sets up specific risk parameters.
TRADING STARBUCKS
Trade idea: Short SBUX into $50.00 with a target of $43.00.
[Editor’s note: Futures traders may want to check out a daily chart of New York coffee futures. The trend is your friend. The weekly chart shows nearby coffee mired in a massive bear trend off the May 2011 from price peak at over 3.0600 a pound, into the summer low at $1.4820. Now, the mid-June low offers major support and target for the bears. Tell us what you think. How would you play this? Do you see cheaper Joe ahead? ]
