August 23, 2009

Latte, Anyone? What the Starbucks Chart Is Telling Us About the Economy



(Click to enlarge)

Most of those who doubt the resilience (or the very reality) of the bull market we've been in since March mention the death of the consumer as their main rationale. I thought I'd take a technical look at a consumer stock if there ever was one: Starbucks. Starbucks isn't just any old consumer stock, it's been THE consumer stock of the 1990's and 2000's, serving premium (some say overpriced) coffee to the hip urban professional class.

The first chart, a daily chart of Starbucks, shows us that SBUX has actually been in a bull market since its 11/20/2008 closing low of 7.17. After its November 2008 low, SBUX made a higher low on 3/9/2009 at 8.27 and then it was off to the races, reaching 19.71 last Friday, up 175% from its low. The stock is comfortably above its 200, 50 and 20-day moving averages which are all trending upwards. In other words, it is in a major, confirmed bull move and not showing any sign of slowing down.

The second chart, a chart of SBUX relative to SPY (the S&P500 ETF), is even more telling. It's showing us that Starbucks started underperforming the overall market as early as June 2006, way before the Great Recession of 2008 and basically when it became clear (to some people at least) the housing market - and by inference the consumer - was going to be in serious trouble. One can picture the marginal consumer of Starbucks Lattes and Frappuccinos, having extracted as much equity as possible from his or her home and finding out that house prices had stopped going up (and even started going down in many places), cutting down on expensive coffee breaks.

Conversely, the relative price chart shows that SBUX started to outperform the market as a whole in November 2008 and has been outperforming since. Having been so right in anticipating the recession, we are entitled to believe the Starbucks stock will also be right in anticipating the end of the recession. It would seem the consumer, after being dead for two and a half years, has resuscitated if we are to believe the sweet nothings the SBUX chart has been whispering in our ears lately.

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