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Is It Time To Buy Starbucks?

03/21/14 03:18:41 PM
by Koos van der Merwe

Howard Schultz, the chairman and CEO of Starbucks, partners with Oprah Winfrey. Does that mean it is time to buy?

Security:   SBUX
Position:   Accumulate

Howard Schultz and Steve Jobs had one thing in common, they both returned to the company they had founded and revived their companies after the share price had fallen dramatically. On March 19, 2014 Howard Schultz met with Oprah Winfrey and arranged to market her drink. The Teavana Oprah Chai Tea will be at the Starbucks stores and its newly acquired tea stores, Teavana, starting April 29, 2014. Is this a boost to the Starbucks (SBUX) share price which has weakened considerably recently?

Figure 1. Monthly chart of Starbucks (SBUX).
Graphic provided by: AdvancedGET.
The chart in Figure 1 is a monthly chart with an Elliott Wave count suggesting that the share price is in a WAVE 4 correction, possibly to $68.22 or $58.72. The PTI (probability index) is 74, suggesting that this fall is very possible. However, with the recent news, the share price has risen strongly suggesting that WAVE 4 could be complete. However, the RSI is falling from overbought levels, giving a divergence sell signal (where the price has risen higher and the RSI tops has fallen lower).

Figure 2. Daily chart showing completed head & shoulders pattern.
Graphic provided by: AdvancedGET.
The chart in Figure 2 is a daily chart showing the head & shoulders formation that developed. The target for the head & shoulders retracement is $67.60 (82.46-75.03=7.43. 75.03-7.43=67.60). The share price fell to $68.75 on February 3, 2014 close enough to the head & shoulders target to be acceptable. The price then rose as shown on the chart in a Wave 1, fell in a Wave 2 and is now tracing a Wave 3 with a target of $80.43. The probability index (PTI) is 48. The chart does suggest that the high of $77.41 reached on March 19, 2014 could be a Wave 3 top, with a Wave 4 correction to follow, but the RSI index is suggesting that the price will continue to rise.

When you buy SBUX, you are buying Howard Schultz. It is his business acumen that is growing and will continue to grow the company. I would be a buyer of SBUX on every correction as long as he remains chairman and CEO.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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