Every day our filtering tools are used to identify stocks that are poised to break out or break down, and when those filters were run on Monday something interesting surfaced. Our stock filters are also correlation tools which allow investors to find stocks that are poised to correlate with the market when the market moves, and that means we often are looking at stocks that have similar trends to the market itself.
The takeaways from our filters on Monday revealed that expected relationship between Starbucks (SBUX) and the stock market itself. The different is that Starbucks has been much stronger than the market itself, but that also presents some risks.
The company has been criticized for many different reasons, but I also find those criticisms to be somewhat intriguing. One of the criticisms that I am thinking about concerns the homeless. Sometimes, at Starbucks, you might see a homeless person sitting at a table next to a business executive, but instead of looking at that and a negative light, I asked myself where else in the world could you ever see that happen. Starbucks is extremely unique, their price points are capable of attracting even the lowest income bracket, but the social atmosphere seems to be what keeps them coming back.
For a few extra pennies coffee drinkers can have a quick chat with friends, take a time out, and do a little people watching. This interesting environment is what separates Starbucks from the rest, arguably the attractiveness to lower income brackets has allowed Starbucks to gain traction even in communities that remain untouched by the asset bubble we're in today, but those same dollars that have pushed housing prices and the stock market higher have also influenced shares a Starbucks itself.
Liquidity is the key element here, and investors tend to chase those companies that seemed to be getting it right. Starbucks is one of those companies, they have been getting it right, but given the alert from our stock filters today, our analysis of Starbucks suggests that significant downside risk exists if the stock breaks below longer term support, and the stock is very close to longer term support right now.
Starbucks appeared on a filter that we ran for stocks that were poised to break below longer term support levels, it was featured prominently, and as a result we consider it a warning. If Starbucks begins to falter even slightly from current levels it has significant room to pull back before it stabilizes again.
Nothing in our SBUX Real Time Trading Report suggests that Starbucks is a bad company; it does not suggest the company will falter in executing its business plan, but none of that makes us money. All that matters to people interested in making money in the stock market is price, and according to our filters if the price pulls back even slightly investors should expect to lose money, but traders can have a field day.
Opportunities do exist when support levels break!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Thomas H. Kee Jr. for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.