Appearing in part 2 of today's "Behind the Headlines" is Starbucks (SBUX), which has hit a new 52-week low today following a brokerage downgrade. "Behind the Headlines" is a daily feature available on SchaeffersResearch.com. Every day, we'll focus on the day's action of newsworthy stocks that are generating a lot of attention. By digging into the stock's sentiment and technical backdrop, we hope to shed some light on the securities.
So, 2007 wasn't a very good year for Starbucks (SBUX: sentiment, chart, options) – the coffee king of Seattle peeled away more than 42% - and 2008 hasn't kicked off any better. This morning, Bear Stearns downgraded its rating on the stock to "peer perform" from "outperform," citing a cooling economy that could stifle discretionary spending. The brokerage also has concerns over increased labor and dairy costs.
In a note to clients, Bear Stearns said that while "The company is actively trying to improve trends with [TV commercials] and new product focus...we think that Starbucks new cyclical sensitivity has more to do with its expanded customer base including less affluent consumers who react to economic pressures."
This downgrade could jump-start a trend toward the bearish end of the spectrum, as analysts have continued to grasp the bullish flag despite the stock's decline. Ahead of today's move from Bear Stearns, there were 5 "strong buy" and 8 "buy" ratings on SBUX, along with just 7 "holds" and 1 "strong sell." The equity is vulnerable to further downgrades, with 13 analysts still stubbornly residing in the bulls' camp. In the past 2 months – not counting today's downgrade – the number of "buy" ratings has dropped to 8 from 11, while the number of "holds" has shifted to 7 from 3.
The shares have reacted to today's downgrade by losing nearly 4%, breaching the 20 level, and entering new-annual-low territory. The stock is trading below its 80-month moving average (and the 10-month and 20-month trendlines are a distant memory), but it has yet to breach its 160-month trendline. This final bastion of technical support resides at the 17.20 level.
Options players continue to grasp to see Starbucks hit rock bottom. Schaeffer's put/call open interest ratio (SOIR) for SBUX currently stands at an annual low of 0.32. In other words, there are 100 open call positions in the January and February series (combined) for every 32 open puts. Call open interest is at its heaviest overhead, most notably at the January 25 and 30 strikes. This backdrop provides a layer of options-related resistance, but a move up as far as the 25 strike would represent a jump of nearly 30% in the shares. The near-the-money 20 strike is home to just 9,000 open January calls.
All of the excitement on Starbucks today has spurred some action in the January 2009 LEAPS calls. More than 3,000 contracts have changed hands on the January 2009 15 and 17.50 puts along with the January 2009 25 call. Prior to today, these options were home to open-interest levels of 4,644; 2,358; and 20,188, respectively.
For additional timely commentary on today's market-moving news from me and my colleagues Andrea, Elizabeth, Jocelynn, Joseph, and Mark, please visit our Schaeffer's Daily Market Blog section throughout the trading day.
Behind the Headlines: LDK Solar Rallies Headlong Into Resistance
Discuss this article:
Post your own comment
More articles:
Option traders are betting on a continued slump for casino concern Bally Technologies Inc. (BYI: sentiment, chart, options) , despite an upbeat analyst endorsement over the weekend. read more...
Aetna Inc. (AET) read more...
Research In Motion Limited (RIMM: sentiment, chart, options) has attracted an unusual amount of attention from option traders today – especially on the put side of the tape. In early afternoon activity, the BlackBerry maker has seen roughly 17,000 puts change hands, already surpassing the stock's expected single-session volume of about 15,000 puts. read more...
Earnings season is upon us, and investors all across Wall Street are hoping to take advantage of these potentially volatile few weeks. Large bull (and bear) gaps, upgrades and downgrades, and short squeezes all become increasingly more likely during this period, as companies meet, beat, or miss quarterly expectations. As such, it is imperative that traders be well equipped to deal with all of the eventualities. read more...
NRG Energy (NRG) read more...
Bullish call spreads are known by a variety of different names among options traders. But whether the position is a bull call spread, bullish debit spread, or a long vertical call spread, it is still constructed by purchasing an at-the-money or in-the-money call while simultaneously selling an out-of-the-money call. The reasoning behind pairing up these seemingly contradictory options is really quite simple: limited risk. read more...
McDonald's Corp. (MCD) read more...
Amylin Pharmaceuticals Inc. (AMLN: sentiment, chart, options) makes and markets two injectable diabetes drugs, Byetta and Symlin, that are approved as adjunct diabetes therapies, according to Hoover's. The company is working on other diabetes drugs, including a once-weekly version of Byetta, as well as treatments for obesity. read more...
Have you ever found yourself chasing profits to make up for prior losing trades? Or quickly exiting a trade to avoid losses, only to watch the position come back strong after your untimely exit? If so, then adding stop losses to your trading tool box should be a top priority. These handy trading tools are basically orders placed with a broker to buy or sell a position once the equity or option reaches a certain price. But before we dive head-first into the various methods of implementing a stop loss, we should first understand the reasons why someone would, or better yet should, implement a trading strategy before jumping into the market. read more...
Boeing (BA) read more...
Today's Most Popular Stories
working... 
