After a strong rally off a double bottom pattern in April and May, shares of coffee conglomerate Starbucks Corp. (SBUX) have now stalled out at the crucial 200-day moving average. Will the Seattle-based brewer have enough strength to finally clear this long-term trend barometer? Based on our analysis of trend, momentum and volume, we see a breakdown as a much more likely scenario. Starbucks has settled into a consolidation phase since early June, bouncing between resistance around $97-98 and support at $90. We can see that the 200-day moving average is almost completely flat, reinforcing the consolidation created by an equilibrium between buying power and selling pressure. We can also observe that after first reaching the 200-day moving average in June, the price has experienced a series of failed breakouts above this resistance point. So most importantly, we would need to see a valid drive above the 200-day moving average, ideally on heavier volume, to suggest an influx of willing buyers that could push SBUX to a new swing high. Besides a failed break above the 200-day, what else on the charts could help us anticipate the direction of an upcoming breakout? The momentum has actually been weakening in July, forming a bearish momentum divergence between price and the Relative Strength Index (RSI). This suggests that even though the price action is sideways, there is lack of upside momentum during this consolidation phase. We can also observe that volume has been trending more negative than positive over the last eight weeks. Here we’re showing the Chaikin Money Flow (CMF), a volume trend indicator designed by technical analyst Marc Chaikin. The declining money flow indicates a lack of upside volume during this sideways price period. Now that the indicator has gone below the zero line, it serves to confirm a distribution phase as selling pressure has outweighed buying power. If Starbucks would break lower in the coming weeks, where could we anticipate potential support? Going back to the $90 support level we mentioned earlier, we can see that this also lines up with a 38.2% Fibonacci retracement level based on the April low through this week’s high. So a drop below $90 would represent a break below a “confluence of support” derived from multiple technical indicators. If we do see a break below $90, we would expect support in the $83-84 range. This would mean about a 61.8% of the spring rally, and also line up with the swing lows from May. While the current consolidation pattern does not give a real indication of future direction for SBUX, based on our analysis of volume and momentum trends, we feel that a breakdown is much more likely here. – David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
