Chart of the Day – $SBUX: Something Brewing

by Dan January 23, 2014 2:46 pm • Commentary

SBUX reports its fiscal Q1 earnings tonight after the close.  The options market is implying a one day move of about 3.8% vs the 4 qtr avg one day move of about 3.25%

Unlike many other names we have looked at heading into Q4 reports, SBUX implied vol is at the high levels where is has gotten to prior to its last 4 earnings reports, seen in the chart below:

SBUX 30 day at the money implied vol from Bloomberg
SBUX 30 day at the money implied vol from Bloomberg

This has a lot to do with one simple fact, the stock has dramatically under-performed the broad market year to date, down 6.5% vs the SPX 1.4%, and down 11.5% from the all time highs made in early November. What that means is that options are expecting a relatively big move and if you own them going in, not only do you have to get the direction right but the stock will need to outperform its recent earnings move averages.

It is important to note that when SBUX reported their fiscal Q4 back on Oct. 30th, sales growth in Asia was less than forecast, as was 2014 guidance, but the stock still went on to make new highs.

So the weak price action heading into tonight’s print is a tough set up for those looking to press it on the short side, and the intra-day price action today resembles somewhat of a “Spike-Bottom” that could signal an intermediate term low.

The six month chart below shows the break-down at $75 last week, coupled with the pick up in volume, suggesting a possible selling crescendo.  What really caught my attention today was the stock’s weakness right after the opening, down almost 2.5%, and bouncing right off of its 200 day moving average (yellow line).   Now the stock is forming that spike where it opened on the low and appears to be closing on the highs, right near the prior days close.  A follow through on the upside would make today’s price action look like a spike, or a nail.

SBUX 6 month chart from Bloomberg
SBUX 6 month chart from Bloomberg

Obviously I have no idea what sort of report we will get tonight from SBUX, but as emerging markets seems to be the focus of late from a macro standpoint, I would suspect that continued weakness in Asia sales would cause the stock to make new lows, while any sort of unexpected uptick would result in a re-test of the mid to high 70s.

I would add one last point, it has not been a great period for cult stocks with high valuations in the consumer discretionary space: CMG down 6% ytd, LULU down 20% ytd, NKE down 8% and WFM down 11% ytd.