Starbucks Corporation (SBUX) stock is up over 6% in pre-market trade on Wednesday after the firm topped top- and bottom-line fiscal third-quarter 2020 earnings projections. The coffee company posted a loss of $0.46 per share on $4.22 billion in sales, a 38.1% decrease year over year. Comparable sales in the Americas and the rest of the world were both down roughly 40% during the quarter. Higher average ticket sales helped to balance the negative indicators, but it wasn’t enough to put profits in the black.
- Starbucks’ quarterly sales in key markets decreased by 40% or more.
- This morning’s buy-the-news response might be attributed to short covering.
- The price range of $80 to $82 represents severe resistance that may not be overcome at this time.
Given the dismal quarter, the strong “buy-the-news” response seemed odd, but investors appear to be looking forward to brighter days. Valuation will become a huge concern in 2021 and beyond if the “new normal” after the epidemic has run its course falls short of the lengthy line of good accomplishments that have led up to 2020. Worryingly, many stocks are already priced for perfection in an imperfect society that may have to deal with a devastating second wave of the pandemic this winter.
Starbucks upped its fourth-quarter and fiscal-year profit forecasts despite forecasting a 10% to 15% fall in consolidated sales. The corporation announced a $0.41 dividend in the hopes of retaining stockholders until the crisis ended. Nonetheless, predictions until the end of the year expect a brighter course than the first half of 2020, and the next pandemic wave, particularly in emerging nations, might be disastrous for the stock market.
A news trader bases his or her judgments on news releases. Breaking news, economic reports, and other reported occurrences may have a short-term impact on stock, bond, and other security prices. News traders attempt to profit by exploiting market mood before to the publication of key news and/or trading the market’s reaction to the news after the fact.
Starbucks Long-Term Chart (2000 – 2020)
A long-term upswing peaked at $6.41 in 2001, paving the stage for a bear market collapse that peaked following the September 11 attacks. The stock hit a new high in the third quarter of 2003 and soared throughout the mid-decade bull market, peaking at $20 in the second quarter of 2006. It broke down from a double top pattern in 2007, launching into a precipitous slide that exacerbated during the 2008 economic downturn. The selloff found support in November, within 16 cents of the 2003 bottom, resulting in a robust rebound to the previous peak in 2011.
When the stock peaked out again in the fourth quarter of 2015, a breakout cut a well-defined Elliot five-wave pattern. A failed rally attempt in 2017 was followed by a successful 2018 effort that saw remarkable gains into July 2019’s all-time high of $99.72. The stock struck a lower high in February 2020 and then crashed along with global markets, unable to break out before falling to a 20-month low in March. The ensuing increase re-enforced the breakthrough, re-establishing support in the low $60s.
Ralph Nelson Elliott established Elliott Wave Theory to analyze price fluctuations in financial markets in which he observed and discovered recurrent, fractal wave patterns. Stock price fluctuations and consumer behavior both exhibit waves. Investors that attempt to benefit from a market trend are said to be “surfing a wave.”
Starbucks Short-Term Chart (2018 – 2020)
After results, the stock is trading barely above the 200-day exponential moving average (EMA) around $79, marking the first rise over this crucial level since June. However, substantial resistance near the February double top breakdown between $80 and $82 suggests caution for the time being. Given the negative measures in play before to reports, it’s more probable that short covering is driving the gain this morning than new buying activity. This natural impulse may be inadequate to significantly enhance the technical picture.
The accumulation-distribution indicator (OBV) continues this conservative trend, adopting a holding pattern in April following a temporary surge in purchasing power. The OBV is high enough in the wide pattern to function as a rally springboard, but the lower red line is unlikely to climb before the higher red line. Bulls, on the other hand, should keep an eye on the $80 to $82 price range for directional cues.
The Bottom Line
After a disastrous quarter, Starbucks stock is making momentum in a “buy-the-news” response, but short-term potential may be limited.
Disclosure: At the time of publishing, the author had no investments in the aforementioned securities.
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