Why Starbucks Shares Look Set For Blue Skies

Starbucks Corporation SBUX hasn’t released any material news in weeks, but that hasn’t stopped the stock from playing out from a charting perspective.

The coffeehouse chain has run up almost 6% over the last seven trading days and on Monday was flirting with its all-time high of $118.98. With earnings season around the corner, and Starbucks set to print its report after the market closes on July 27, traders will want to see strong revenues to stain its 139.12 billion market cap.

One options trader believes Starbucks is headed much higher over the next few months and on Monday morning purchased 600 call contracts with a strike price of $135 that expire on Oct. 15. The trader paid 71 cents for each contract for a total of $42,600.

Technical analysis says Starbucks could make a blue sky run as well although some consolidation may be needed in the short term.

See Also: How to Buy Starbucks Stocks • History, Pros & Cons

The Starbucks Chart: Starbucks’ stock broke up bullishly from a descending trendline that had been holding it down since April 20 after reaching its April 19 all-time high. The stock's action on July 1, when it broke up through the trendline and popped up over a $112.75 resistance level indicated it would be a good time to take a bullish position for a move higher.

Starbucks has since blasted through two further resistances at the $114 and $116 levels, but on Monday was developing some bearish divergence on smaller timeframes indicating consolidation may be needed before a blue sky run. Regular bearish divergence happens when a stock price makes a new high, but its relative strength index makes a lower high. Starbucks has obvious bearish divergence on both the hourly and 15-minute timeframes.

Starbucks is trading above both the eight-day and 21-day exponential moving averages EMAs) with the eight-day EMA trending above the 21-day EMA, both of which are bullish indicators. Starbucks is also trading about 4.5% above the 200-day simple moving average, which indicates overall sentiment in the stock is bullish.

Bulls want to see some consolidation play out on Starbucks’ stock for it to garner enough power to make a move up over its previous all-time high. If it can make a blue-sky run, there is no previous price action to act as resistance.

Bears want to see bearish volume enter Starbucks stock to drive it down under support at $116.49. If the stock doesn’t drop below that level, bears could watch to take a position if Starbucks creates a bearish double top pattern at $118.98.

SBUX Price Action: Shares of Starbucks were trading up 1% to $118.67 at publication time.