Charting a Breakdown with Targets in Starbucks SBUX

Dec 10, 2013: 11:48 AM CST

In today’s session, Starbucks (SBUX) powerfully broke under its rising 20 day EMA support level to collapse in the intraday session away from this support level.

Let’s take a look at what target was immediately hit on the breakdown and where we can plan set-ups from here.

We’ll start with the Daily Chart trend and surprise breakdown event today:

Starbucks Coffee Starbucks Stock SBUX Breakdown Trend Reversal Trade Target Trade Planning Daily Chart

I say “surprise,” but we see a lengthy negative momentum divergence in the 3/10 Oscillator that developed from August to the recent November high.

Divergences never are stand-alone trend reversal signals, but they do add to the “weight of the evidence” model that keeps us cautious and gets us ready to anticipate any possible trend reversal that may develop with breakdown signals like these.

We look for price to support into rising 20 or 50 day EMAs, and Starbucks (SBUX) exemplified this behavior (and retracement-style trading entry opportunities) all throughout 2013.

Breakdowns under the rising 20 day EMA tend to find support into the rising 50 day EMA.

However, a breakdown under the rising 50 day EMA could signal an official trend reversal may be developing rapidly.

While the Daily Chart shows two downside potential ‘reversal’ targets to play for ($74.00 and $70.00 – a confluence with the rising 200 day SMA) as labeled with yellow highlights, something interesting just happened on the Weekly Chart.

Let’s take a look at something the Daily Chart can’t show us:

Starbucks SBUX Starbucks stock trading tactics weekly chart intermediate trend weekly trend breakdown target support

Today’s sharp downside break achieved a full retest of the rising 20 week EMA into $76.50 per share.

When we can’t find simple targets on a Daily Chart, be sure to step up to a higher timeframe like the Weekly Chart for any “obvious” target levels like this.

This puts Starbucks shares into yet another critical decision (trading) zone.  A support-bounce here off the weekly frame (applicable to longer-term traders) could develop off the rising 20 week EMA.

Otherwise, a shattering (breakdown) under this reference level does strongly suggest that lower targets could quickly be achieved, including the confluence of the rising 50 week EMA and lower weekly Bollinger Band into $70.00 per share.

Whatever the outcome, Starbucks teaches us great examples (where we can follow along in real-time) with respect to divergences in a mature trend, daily chart breakdowns, and weekly chart targets/structure.

Be sure to reference two earlier featured educational posts from the past:

Google Provides a Lesson on the Importance of Viewing Multiple Timeframes

An Update on IBM Reveals why using Multiple Timeframes is Critical.”

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Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning parameters as we watch a “hold and bounce” or “break and retrace” scenario play out in the near future.

Corey Rosenbloom, CMT
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