Dear Momentum Options Subscriber,
Wall Street will be cheerleading for Starbucks (SBUX) to announce better-than-expected earnings today, as they are due to be released after the close. Analysts are expecting the company to post a profit of $0.55 a share on revenue of $5.68 billion.
The high estimate has Starbucks earning a profit of $0.55 a share on sales of $5.77 billion. The low number has the company at $0.54 a share on revenue of $4.91 billion. The company has matched estimates during three of the four previous quarters, including the past two, with a penny beat ahead of that. In other words, the company has guided the suits-and-ties well, or their homework has been spot on.
The near-term chart shows shaky support at $52 and risk to $51-$50, and a test to the latter would represent a 4% pullback from current levels. Resistance is at $53-$53.50. The 50-day moving average crossed below the 100-day moving average in late September and that follows a “death cross” that developed in May above $60.
The two-year chart shows the recent close below the 100-week moving average, with risk to $50 and possibly $47.50 on an earnings miss or lower guidance going forward. Also notice the intraday dip below $42.50 in mid-August 2015.
The company has aggressive plans to open a new Starbucks every day in China for the next five years. While admirable, I predict consumers will eventually grow weary of paying $5 for a cup of Joe in the coming years. Of course, this will not happen overnight, and Starbucks has a very, very loyal following.
An earnings beat by a penny or two would be a delight, but revenues need to top the whisper numbers, which is something I don’t believe is going to happen for the recently ended quarter. I also think holiday sales will sag along with a slower shopping season for Christmas.
The fundamental picture for Starbucks has been solid for years, but the technical picture has me favoring a bearish trade. I issued a New Trade Alert on Starbucks (SBUX) earlier this afternoon, and that alert is reiterated below, so be sure to check it out now if you haven’t already done so.
Heading into the second half of the action, the Dow is falling 11 points to 17,948, while the S&P 500 is slipping 5 points to 2,092. The Nasdaq is down 31 points to 5,074, and the Russell 2000 is lower by 2 points to 1,160.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 77-31 (71%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
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All prices given in this update are current as of 1:35 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
Starbucks (SBUX, $51.76, down $1.22)
Buy to open the SBUX January (2017) 47.50 puts (SBUX170120P00047500) for a maximum price of $1.10.
Action: I like these put options at current levels, and you can use a Limit Order up to $1.10 to get the best fills.
These are the regular monthly options that expire on Jan. 20, 2017. I will provide the parameters of the trade in tomorrow’s Pre-Market Update.
Microsoft (MSFT, $59.26, down $0.17)
MSFT December 57.50 puts (MSFT161216P00057500, $1.10, up $0.12)
Entry Price: $0.86 (11/1/2016)
Exit Target: $1.75
Stop Target: None
Action: Support at $58-$57.75 and the 50-day moving average is in play. Resistance is at $59.50-$60.
You can read my previous comments on MSFT in the Oct. 31 Mid-Market Update.
Lattice Semiconductor (LSCC, $7.56, up $1.19)
LSCC December 7.50 calls (LSCC161216C00007500, $0.30, up $0.02)
Entry Price: $0.30 (10/12/2016)
Exit Target: $0.90 (Limit Order)
Stop Target: None
Action: Continue to hold. I will have a more detailed write-up in the morning.
Viavi Solutions (VIAV, $7.24, up $0.07
VIAV December 8 calls (VIAV161216C00008000, $0.10, down $0.01)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: $0.05 (Stop Limit)
Action: Resistance is at $7.20-$7.25 and the 100-day moving average. Support is at $7-$6.90.
Editor and Chief Options Strategist