Starbucks Plunges As Xi Jinping Consolidates Power: Here's What's Going On

Starbucks Corporation SBUX was sliding about 6% lower on Monday in tandem with a number of China-based stocks.

The Hang Seng Index closed 6.36% lower at $15,180.70, a more than 42% decline from the Jan. 4 opening price, dragging stocks such as Alibaba Group Holdings, Ltd - ADR BABA and Nio Inc - ADR NEO down... Read More

Starbucks has a large imprint in China, operating more than 5,400 stores on the country’s mainland. When President Xi Jinping secured an unprecedented third term on Sunday and reshuffled his Politburo Standing Committee to elect loyalists, investors grew fearful the Chinese Communist Party’s goals could prove to be bad for China’s economy.

The negative reaction to the news caused Starbucks to fall under the 200-day simple moving average (SMA), which threw the stock back into a potential bear cycle. Starbucks had been holding up above the 200-day SMA during recent weeks, showing comparative strength to the general markets.

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The Starbucks Chart: Starbucks has been trading in a mostly sideways pattern between about $83 and $93 since July 28. On Sept. 8, Starbucks regained the 200-day SMA as support and has mostly held above the level since.

• When a stock trades above the 200-day SMA, it’s considered to be in a bull market. The loss of the area on Monday likely spooked some investors. The plunge also caused Starbucks to print a lower low, which confirmed Starbucks is now trading in a downtrend.
• If Starbucks closes the trading day with a significantly lower wick, a bounce is the most likely scenario for Tuesday. The second most likely scenario is that Starbucks will print an inside bar pattern to consolidate the steep drop.
• If Starbucks bounces on Tuesday, bullish traders will want to see the stock regain the 200-day SMA. If Starbucks runs into sellers and closes the trading session near the low-of-day, the stock will print a bearish kicker candlestick, which could indicate lower prices are on the horizon.
• Starbucks has resistance above at $86.61 and $90.97 and support below at $82.93 and $79.18.

See Also: Why Starbucks Shares Are Falling

Photo: testing via Shutterstock