Working Money magazine.  The investors' magazine.
Traders.com Advantage

INDICATORS LIST


LIST OF TOPICS





Article Archive | Search | Subscribe/Renew | Login | Free Trial | Forgot ID?


PRINT THIS ARTICLE

OVERBOUGHT OVERSOLD


Starbucks Unable To Fill The Gap

03/01/05 08:29:50 AM
by Arthur Hill

While the broader market recovered in February, Starbucks has yet to fill its gap and remains oversold.

Security:   SBUX
Position:   Hold

Starbucks has been one of the top performers over the last two years, and the August-December advance tacked on another 50% gain. The recent decline carried the stock to a support zone around 50. The decline retraced 62% of the August-December advance and found support near the July high (support from broken resistance). In addition to this support zone, the stochastic oscillator (20,5,5) moved below 20 and remains there in oversold territory.

Despite a support zone and oversold condition, the outlook for the stock is not bullish. First, the stock peaked in late December and the steep January decline occurred on high on volume (blue box). A corrective decline should form on relatively low volume and the sharp increase in selling pressure is not a good sign. Second, a stock can become oversold and remain oversold. Note how the stochastic oscillator became overbought for three months (green box). The current oversold condition has lasted only one month and should be considered bearish as long as the indicator trades below 30. Third, the gap has yet to be filled. The stock gapped down in early January (blue arrow) and this was the breakaway gap. The current gap is within a downtrend and should be considered a continuation gap as long as it remains unfilled.

Figure 1: Starbucks. While the broader market recovered in February, SBUX has yet to fill its gap and remains oversold.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
Watch the February high and low for the next signal. The current pattern looks like a consolidation after a sharp decline (gray oval). A move below the early February low (49.14) would signal a continuation lower and target weakness to the low 40s. Should the stock manage to firm, it would still need to fill the early February gap to consider buying pressure substantial enough to expect further upside.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
Company: TDTrader.com
Address: Willem Geetsstraat 17
Mechelen, B2800
Phone # for sales: 3215345465
Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

Traders' Resource Links
TDTrader.com has not added any product or service information to TRADERS' RESOURCE.

Click here for more information about our publications!


Comments or Questions? Article Usefulness
5 (most useful)
4
3
2
1 (least useful)

Comments

Date: 03/02/05Rank: 4Comment: 
PRINT THIS ARTICLE





S&C Subscription/Renewal




Request Information From Our Sponsors 

DEPARTMENTS: Advertising | Editorial | Circulation | Contact Us | BY PHONE: (206) 938-0570

PTSK — The Professional Traders' Starter Kit
Home — S&C Magazine | Working Money Magazine | Traders.com Advantage | Online Store | Traders’ Resource
Add a Product to Traders’ Resource | Message Boards | Subscribe/Renew | Free Trial Issue | Article Code | Search

Copyright © 1982–2020 Technical Analysis, Inc. All rights reserved. Read our disclaimer & privacy statement.