SBUX - Bearish Divergence - Short Opportunity
SBUX seems to be showing a bearish divergence with the price action and RSI.
If you can look at the chart, see how the Price action is creating Higher Highs, and RSI indicator is creating Lower Highs. That is a bearish indicator.
Obviously, we do not want to make our decision just by using one indicator.
We also see a rising wedge (in yellow) which we can use to mark our entries. As drawn on the chart, if the price breaks and closes below the rising wedge, we can enter PUTS and ride it until after earnings.
The trade will get invalidated if the price breaks and closes above the bigger rising wedge (blue) , or (109.76) which we can use as a Stop-Loss.
I've also marked some key support levels on the downside which you can use to plan your exits.
TRADE:
Option 1: (ITM) $110 Puts Expiring 3/17/2023 (around $530 per contract)
Option 2: (OTM) $95 Puts Expiring 3/17/2023 (around $100 per contract)
Stop-Loss: Price closes above 109.76
Risk: HIGH. (This can easily backfire and run up with the earnings FUD and depending on the result.) But I'll stick to my strategy and add the trade with a tight stop.
As earnings are approaching, it is always risky to trade the ticker due to high volatility and not having a clear direction bias of the result.
This is just my opinion. Do you own research before entering the trade.
Let me know what you think in the comments below. Would love to see some of your inputs.
If you can look at the chart, see how the Price action is creating Higher Highs, and RSI indicator is creating Lower Highs. That is a bearish indicator.
Obviously, we do not want to make our decision just by using one indicator.
We also see a rising wedge (in yellow) which we can use to mark our entries. As drawn on the chart, if the price breaks and closes below the rising wedge, we can enter PUTS and ride it until after earnings.
The trade will get invalidated if the price breaks and closes above the bigger rising wedge (blue) , or (109.76) which we can use as a Stop-Loss.
I've also marked some key support levels on the downside which you can use to plan your exits.
TRADE:
Option 1: (ITM) $110 Puts Expiring 3/17/2023 (around $530 per contract)
Option 2: (OTM) $95 Puts Expiring 3/17/2023 (around $100 per contract)
Stop-Loss: Price closes above 109.76
Risk: HIGH. (This can easily backfire and run up with the earnings FUD and depending on the result.) But I'll stick to my strategy and add the trade with a tight stop.
As earnings are approaching, it is always risky to trade the ticker due to high volatility and not having a clear direction bias of the result.
This is just my opinion. Do you own research before entering the trade.
Let me know what you think in the comments below. Would love to see some of your inputs.
Order cancelled:
Trade invalidated due to the 109.76 break. After the FOMC meeting, the market has turned bullish. Will wait for a better entry.
Comment:
Let's see if the price closes below 109.76 before the market close.
Comment:
I guess the big tech earnings managed to push SBUX down and out of the rising wedge. With the volatility in the market anything can happen, but SBUX is nicely sitting at the 104 support. If we break that further downside will happen.