After posting disappointing revenue on July 29th, Starbucks (SBUX) has been on a steady downtrend for the past two months. Meanwhile, the broader market continues to be marked at all-time highs. An old market saying – “The rising tide lifts all boats” – could soon be coming in to signal future FOMC meetings potentially the start of the rate-cut cycle. With that in mind, I’m scanning stocks that have not yet reached the territory that was bought, and Sbux fits that bill. As inventory remains on a downtrend, patience and confirmation are important before intervening. It is worth noting that they are not aggressively bullish here. The setup is structured and even my favourably modest 30-cent move can double the return on this deal. If you like this trade setup, you’ll be opening a free trade scanner for the newly launched trading algorithm for CNBC Leaders on Tuesday. Try spinning here. Because we need to confirm more, we use three technical indicators for this transaction setup. RSI (Related Strength Index) Relative Strength Index (RSI) is a widely used momentum indicator and a reliable signal for potential inversions. If the RSI drops below 30, it is usually considered that the inventory is being sold in excess. Traders often wait for the indicator to rebound beyond that threshold before treating it as a potential purchase signal. That’s exactly the current tense setup at Starbucks, suggesting that stocks may be approaching an inflection point, even if they remain on a wider downtrend. Directional Movement Index (DMI) Directional Movement Index (DMI) uses three components: DI+ (green), Di– (red), and ADX (blue) to track market momentum. If di- exceeds di+, the seller will have the advantage. However, as Di+ starts to rise as Di- weakens, it may mark the beginning of a momentum shift. In SBux, Di+ has a higher curl during di-fade, indicating that bear pressure may lose steam and bullish momentum may be entrenched. MACD (Version of Moving Average Convergence) This indicator has become my favorite in recent history and I discovered it while developing trading algorithms. Standard MACD uses a widely used setting (12, 26, 9) with a slightly delayed setting. To find a trade setup, I often switch to MACD (5, 13, 5) and read more quickly. In SBUX, the MACD line (blue) is just about to crucify over the signal line (yellow), and this is the final confirmation of this transaction setup. Trading Setup: SBUX 82-83 Bull Collosspreads are popular with stock trading near $82.68. The structure is simple. Buy a $82 call (in the money) and sell a $83 call (not money) as a single package. Once the stock is choppy, you can expand your trade by stacking additional spreads. For example, if you descend towards $80, you’ll have the opportunity to add a call spread between $80 and $81, which will tighten your risk while using pullbacks. My exact trade setup is: If you purchase a $82 call and have an expiration date of $83, October 10th, October 10th expiration date: $50 Potential profit: $50 If you purchase a $82 call and your SBUX ends with an expiration date of $83 or more, the spread will pay a value of $1.00. Running a 50 contract will risk $2,500 with profits of up to $2,500. -nishant Pant Founder: https://tradewithmaya.com Author: Average Return YouTube, Twitter: @themeantrader Disclosures: (There is an SBux call spread where Nishant has expired on October 10th). All opinions expressed by CNBC Pro contributors are their opinions solely and do not reflect the opinions of CNBC, NBC Universal, its parent company or its affiliates and may have been previously sown on television, radio, the Internet, or another medium. The above content is subject to our terms and conditions and privacy policy. This content is for informational purposes only and is not aware of any financial, investment, tax, legal advice or recommendations for purchasing security or other financial assets. Content is inherently general and does not reflect the unique personal circumstances of the individual. The above content may not be suitable for your particular situation. You should strongly consider seeking advice from your own financial or investment advisor before making any financial decisions. For the full disclaimer, click here.
