Starbucks Once upon a time was a nice trending stock
Market loves Starbucks pic.twitter.com/3ZHL5bMTJK
— Deepak Singh (@smarket) August 5, 2015
After a big rally - stocks don't crash. They actually go in the state of Hibernation, and this period can lasts for years. It means they actually digest the gains by going nowhere. They give time for earnings and other factors to catch up before making next move. It's no surprise that this is how Starbucks stock looks like as of now: 2 years and have gone nowhere
When stocks trade sideways, it becomes a difficult stock for traders who look for clean moves. Slowly, the interest in the stock disappears and such stocks do become vulnerable.
When does such kind of stock become Value buy for people who follow Price Action?
You have to take big picture approach i.e. at what price the stock will make a major move. Here's where weekly chart becomes useful.
As you can see in the chart above -Starbucks will become a good Buy at 200 week moving average and it seems in few weeks time - the Horizontal support Line and 200 week moving average will converge near levels of 51-52 triggering a solid buy. We also call this as low risk buy because at this juncture - one can keep a tight stop loss and if Starbucks stock breaks that - one can quickly exit and avoid emotional pain.
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Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers