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Asset Watch
Tuesday May 14, 2024
Investors have roasted Starbucks over the last 12 months, as the coffee giant has declined by 34% from its May 2023 highs. After its same-store sales sank and the company cut its 2024 guidance on Apr. 30, CEO Laxman Narasimhan said:
“In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities, or the opportunities ahead. It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us.”
But with historical setbacks providing solid buying opportunities, could a short-term rally be in the cards?
Supporting the bull case, Starbucks’ weekly RSI (the blue line at the bottom) hit 27 two weeks ago. Outside the Covid-19 crash, it was the lowest reading since the 2008 global financial crisis, so as a result, the stock was extremely oversold. With the metric ending last week at 32, the recent rally could have more room to run.
While the stock bounced off support near the previous lows (the $71 area), weekly resistance is near $82. The level is close to the November 2019 lows, the June 2020 highs, the March 2022 lows, the May to June 2022 highs, and the August to November 2022 lows. As such, a rally back to the $82 area represents about an 8% upside from the May 10 close and could offer a solid risk-reward given the stock’s recent suffering.
Likewise, a similar event occurred in 2022, where the stock collapsed below $70, then rallied back above $81, and then corrected again.
So, can Starbucks find some short-term strength, or is another sell-off on the horizon?
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