Option Investor
Market Updates

Coffee and a Paper

Printer friendly version

Starbucks (NASD:SBUX) reported earnings of $46.8 million, and revenues increased by 19 percent to $663 million. The company reiterated its 2001 earnings target and comparable store sales forecast of low single digits. But Salomon Smith Barney has downgraded the stock on fears that comp sales may stay in the low single digits longer than expected. How can that be? I stop there three or four times a week, at $3 bucks a pop. Now that they have me hooked, I can't stop. But I digress.

Starbucks Daily Chart

Starbucks stock had doubled since January of 2000, but something rotten was brewing when the first downtrend was broken in March of this year. SBUX then dropped down to the longer 15-month downtrend, and briefly consolidated. That support was then broken, and the stock dropped to support at $18. Two rally attempts failed to clear resistance at the old trend line, and the stock is once again testing support at $18. If that support level is lost, the stock could get grinded like a coffee bean, dropping to $16 or $14.

Doing my part to keep Starbucks comp store sales strong, I stopped by my local Starbucks this morning. While waiting for that magical brown liquid that will wake me from my walking coma, I picked up a copy of The Denver Post. There on the front page is the headline, Buyers Gain as Houses Flood Market. The crux of the story was that home listings are up 38.4 percent from a year ago, the highest number in over a decade. That is leading to softer prices, and homebuyers no longer have to pay the asking price or greater. But at the same time, the government is reporting that new homes sales jumped 1.7% in June. So are homebuilding stocks going to continue to construct gains, or crash like a house of cards? That's why we have charts.

Pulte Homes Daily Chart

Pulte Homes (NYSE:PHM) reported on Tuesday that earnings jumped 27%, but the stock jumped far less than that. The news couldn't even catapult the stock back above the 50-day moving average. PHM is still above its 16-month up trend, but it looks like a test could be coming soon. Adding to the significance of that support test is the 200-day moving average just below. The breaking of that trend would be the first sign of weakness, but all hope may not be lost for Pulte if that happens. Just below is a congestion area between $37 and $32.80, the 38.2 and 50.0 percent retracement levels. The area should support, or at least slow down, any further declines. If PHM drops below $32.80, it could be a house of cards waiting to topple.

Jeffrey Canavan
Assistant Analyst

Intraday Update Archives