Preparing to Buy the Dip in Starbucks

Starbucks, $SBUX is one stock that is looking a bit tired. It is no wonder after a 18 month run higher with barely a slow down as seen on the weekly chart below. There are many signs, the Relative Strength Index hit the high 80’s and is now falling, the price has gotten extended over the 50 week Simple Moving Average (SMA) the Moving Average Convergence Divergence (MACD) indicator has stalled and is reversing. If a pullback continues then it seems likely to reach at least a 23.6% retracement back to 52.58 and the 50 week SMA at 50.26 has acted as support previously, with the consolidation zone between 47 and 50 below that as support.

But what do you do about it? If you have been looking to get into this stock this could be a real opportunity. You can position for this now by selling the May 52.5 and 50 Puts. The 52.5 Puts were bid late Thursday at 59 cents and the 50 Strike Puts at 35 cents. These would give you an entry in the stock at 51.91 or 49.65 at Expiry if the stock falls that far, otherwise you keep the premium and can assess if you want to buy it higher. You can sell these all at once or ladder in to them as the price falls to get an even better entry point. Watch other high momentum stocks for this type of potential entry to get on board for the next leg higher. Another on my list is Chipotle Mexican Grill, $CMG, which reported earnings Thursday night. If the weekly candle continues lower and then confirms next week it looks to be a good candidate for Put sales as an entry, perhaps with a 380 (50 week SMA) or 355 (23.6% Fibonacci retracement) Strike.

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Dragonfly Caps Blog