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Asset Watch
Tuesday, August 13, 2024
Calm came over the financial markets near the end of last week, as the S&P 500 and NASDAQ 100 rallied sharply and the Cboe Volatility Index (VIX) fell back near 20. And as stabilising economic data helps to push Treasury yields higher, recession fears and calls for emergency rate cuts, have largely dissipated.
Yet, while investors’ anxiety will likely linger, could a beaten-down stock like Starbucks be a solid alternative to Big Tech?
With its share price languishing, on July 29 the Wall Street Journal (WSJ) reported that activist hedge fund Elliott Management bought a significant stake in Starbucks, with plans to streamline its operations. Likewise, on August 9 the WSJ reported that activist hedge fund Starboard Value bought Starbucks, meaning even more pressure is on management to deliver shareholder returns.
For the last three months, Starbucks has been range-bound, trading between roughly $71 and $81. However, the stock has successfully retested the lows twice, and the price action rivals what we saw from May through July 2022.
The interesting thing about 2022 is that Starbucks sunk near $71 (the lower horizontal white line), rallied back above the 5-week moving average (the blue line), then hit the $81 area (the upper horizontal white line) before selling off and falling back to the lows.
The same thing happened in 2024, which means the next major move could be higher. Back in 2022, once the blue line turned up, Starbucks rode the 5-week MA as support and eventually broke out above $81 en route to $115.
The key is to pay close attention to the 5-week MA. Right now, it’s moving somewhat sideways. But, if the Starboard Value news helps push the stock higher and the 5-week MA turns up, it could become support like in 2022 and help fuel a breakout above $81.
Consequently, a long position is justified when Starbucks trades above its 5-week MA.
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