Shares Jumped Nearly 7% on Friday
Source: TradingView.com
Key Takeaways
Starbucks shares jumped nearly 7% on Friday following a report that activist investor Elliott Investment Management has taken a sizable stake in the global coffee chain and discussed ways to improve its lagging stock price.The price has carved out two distinct lows on above-average volume, potentially marking a double bottom, a classic chart pattern that forms after a significant decline and indicates an upside trend reversal.Starbucks shares may encounter overhead resistance at key chart levels including $82, $91, $97, and $106.
Starbucks (SBUX) shares jumped nearly 7% on Friday to log their highest one-day percentage gain in more than eight months after the Wall Street Journal reported that activist investor Elliott Investment Management has taken a sizable stake in the global coffee chain and discussed ways to improve its lagging stock price.
Below, we take a closer look at Starbucks’ weekly chart and use technical analysis to identify important price levels to monitor amid a potential reversal.
Shares Carve Out Possible Double Bottom
Starbucks shares sold off after the 50-week moving average (MA) crossed below the 200-week MA to generate a death cross signal in late March. However, since bottoming out in early May, the price has carved out two distinct lows on above-average volume, potentially marking a double bottom, a classic chart pattern that forms after a significant decline and indicates an upside trend reversal.
It’s also worth pointing out that as the stock’s second trough made a slightly lower low, the relative strength index (RSI) made a comparatively shallower low to create a bullish divergence, a technical signal pointing to easing selling momentum. Moreover, both lows roughly align with a V-shaped trough that formed between May and June 2022, providing additional confirmation of a high probability reversal area.
Monitor These Key Overhead Resistance Levels
Looking ahead, investors should monitor four specific levels on the chart where the coffee chain’s shares could face overhead selling pressure if they continue higher.
Firstly, the stock could run into initial resistance around $82, where it may encounter sellers near a horizontal line linking a series of important price points from March 2022 to June this year.
A close above this level could see the price move up to around $91, an area on the chart where sellers may be happy to lock in profits near a multi-month trendline that currently aligns with the downward sloping 50-week MA.
Further upside could fuel a rally to the key $97 region, where a trendline linking the 200-week MA and a series of price action between January 2021 and February this year may provide future resistance.
Finally, a more bullish move could see the shares revisit the $106 level, a location that sits in close proximity to a trendline connecting a range of peaks and troughs dating all the way back to December 2020.
Starbucks shares were down 0.7% at $78.70 in recent premarket trading Monday.
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