Starbucks Stock Brews A Setup For Bulls, Bears: Here's Where To Watch For The Break

Starbucks Corporation SBUX was trading mostly flat Wednesday morning, following a number of days when the stock has traded in a tight $5 range between $68.39 and $73.47 in consolidation.

The multinational coffee chain has plunged about 45% from its July 23, 2021 all-time high of $126.32 to reach a 25-month low earlier this month, on May 12. Starbucks has been plagued by the current bear cycle in the general markets as well as continued COVID-19 lockdowns in China, where its sales for the second quarter fell 23%.

The downtrend in Starbucks ended on May 12 and since that date, the stock has consolidated into a symmetrical triangle on the daily chart.

A symmetrical triangle pattern is created when a stock forms a series of lower highs and higher lows between a descending and an ascending trendline, which meet on the right side of the chart to form an apex. The pattern indicates that the bulls and bears are equally in control.

A symmetrical triangle is often formed on lower-than-average volume and demonstrates a decrease in volatility, indicating consolidation. The decreasing volume is often followed by a sharp increase in volume when the stock breaks up or down from the pattern, which should happen before the stock reaches the apex of the triangle.

• Aggressive bullish traders may choose to purchase a stock in a symmetrical triangle when the security reverses course on the lower ascending trendline, with a stop set if the stock rejects at the upper descending trendline of the pattern. More conservative traders may wait for the stock to break up bullishly from the pattern on higher-than-average volume.
• Aggressive bearish traders may choose to trade opposite to the bulls, entering into a short position on a rejection of the upper descending trendline and covering the position if the stock finds support at the lower trendline. Opposite to the bulls, conservative bearish traders may wait for the stock to break down from the lower trendline on higher-than-average bearish volume.

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The Starbucks Chart: Starbucks’ began trading in a symmetrical triangle on May 6 and both the bulls and the bears have attempted to break the stock from the pattern on a number of occasions and failed. Starbucks is set to meet the apex of the triangle on May 31 and both bullish and bearish traders can watch for the break up or down from the pattern to gauge future direction.

• Starbuck’s relative strength index (RSI) has slowly been increasing and currently sits at about 45%. An increasing RSI indicates the stock is gaining momentum, which is bullish.
• Starbucks has multiple gaps above, with the closest gap between $88.46 and $90.48. Gaps on charts fill about 90% of the time, which indicates Starbucks is likely to trade up into that range in the future. The top of the gap represents about a 24% increase from the current share price.
• Starbucks has resistance above at $73.47 and $76.69 and support below at $71.06 and the 25-month low.

See Also: Starbucks Divests This Cold-Pressed Juice Brand - What's The Focus Now