Starbucks Corporation (NASDAQ:SBUX) spiked up 8.39% on Wednesday before retracing below the stock’s opening price of about $88.
JPMorgan analyst John Ivankoe upgraded Starbucks from Neutral to Overweight and announced a price target of $101. If Starbucks is able to reach the target, it will represent about a 15% increase from the stock’s current price.
Ivankoe sees consumption habits in the U.S. recovering from the reduced levels brought on by the COVID-19 pandemic but noted that China, the second-largest economy in the world, has been slower to recover than anticipated.
On Wednesday, the multinational coffeehouse chain also announced that its founder, Howard Schultz, will temporarily return to his former role of CEO after the current CEO, Kevin Johnson, steps down on April 4. Johnson will transition to a role as a partner and special consultant to Starbucks and its board through September.
Johnson, who has been CEO for five years, navigated the company through a number of controversies, including in 2018 when Starbucks faced fierce backlash and criticism after two black men were arrested at a Philidelphia store as they awaited a business meeting.
More recently, Starbucks has made headlines for its opposition to the unionization efforts store employees have worked toward, including a report Schultz traveled to a unionized Buffalo location to intimidate employees prior to the successful vote.
The rise in Starbucks on Monday may be due to JPMorgan’s upgrade as opposed to the change in management, even though the stock had flashed technical signals a reversal to the upside was in the cards before either news items were released.
See Also: Why Are Starbucks Shares Trading Higher?
The Starbucks Chart: On Wednesday, Starbucks reacted bullishly to the divergence that had developed on its daily chart, which Benzinga called out on Monday. Although it was considered weak bullish divergence — which occurs when a stock forms a series of lower lows but the relative strength index’s lows remain flat — it indicated that at least a bounce to the upside was in the cards.
The bounce allowed Starbucks to print a higher high of $90.09, which is above the March 11 lower high at the $88.81 level and indicates a trend change is in the cards. The stock will eventually need to print a higher low above the March 14 low-of-day at the $78.92 level to confirm the trend change.
If the stock confirms a trend change and prints a higher low, traders will be watching to see if the stock fills the lower gap that was left behind on Wednesday.
Gaps on stocks fill about 90% of the time and it would give bulls more confidence if the gap was filled over the coming days, which could also provide a solid entry point for traders not already in a position.
On Wednesday, Starbucks looked to be printing a shooting star candlestick, which could indicate lower prices will come on Thursday, although Thursday’s candle will be needed to confirm the pattern. A shooting star is considered a signal a reversal to the downside may be on the horizon.
Starbucks is trading above the eight-day exponential moving average (EMA) but below the 21-day EMA, which indicates bullish-leaning indecision. If the stock is able to regain the 21-day EMA over the coming days and trade above it for a period of time, the eight-day EMA will cross above the 21-day, which would give bulls more confidence going forward.
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- Bulls want to see the stock print a higher low to confirm the uptrend and then for big bullish volume to come in and push Starbucks up above the 21-day EMA. There is resistance above at $90.96 and $93.53.
- Bears want to see big bearish volume come in and drop Starbucks down the March 14 low-of-day, which could indicate Wednesday’s spike was a bull trap and the stock will continue lower in its downtrend. Starbucks has support below at $86.61 and $82.37.
Photo: Courtesy Starbucks
