The narrative of the stock market hasn't changed, Jim Cramer assured his "Mad Money" viewers Thursday, but the prices you have to pay for it certainly have. Fortunately, savvy investors may have used Thursday's weakness as a buying opportunity. Think of it as a Halloween sale. Starbucks (SBUX) is one company Cramer cited at the top of his program that may be worth buying now.
Let's check out the charts while we wait in line for our double shot whatever.
In this daily bar chart of SBUX, below, we can see that prices have corrected lower the past two months. Prices are below the declining 50-day moving average line, so we know from math that the short-term trend is down. Last week prices got down near the rising 200-day moving average line and then turned back up, telling us that the longer-term uptrend was still intact.
The daily On-Balance-Volume (OBV) shows only a modest decline from early September but it has recently started back to the upside, telling us that buyers of SBUX are again being more aggressive. The 12-day price momentum indicator in the lower panel is showing a bullish divergence as it has been making higher lows from September to October while prices made lower lows. This difference in the indicator versus the price action tells us that the decline has slowed and this can foreshadow a new uptrend.
In this weekly bar chart of SBUX, below, we can see a positive picture. It looks like prices have successfully tested the rising 40-week moving average line. The weekly OBV line has turned flat or neutral after a decline in September. The slow stochastic indicator shows that prices are very oversold and that can make them sensitive to new buying. An oversold reading with a reversal pattern can often mark a low or turning point.
In this Point and Figure chart of SBUX, below, we can see that prices have reached a downside price target. We also see that a trade at $87.32 or higher could improve this chart and prompt further buying.
Bottom line strategy: It looks like the correction in SBUX is over, so traders could probe the long side of SBUX at current levels risking below $81.
