Timmy’s or Starbucks?

November 14, 20124 Comments

Canadian coffee drinkers tend to be either “Timmy’s” people, or Starbucks people (or “Five-bucks”, as some call it due to the cost of their espresso drinks). These companies have managed to successfully cater to two different markets. Tim Hortons caters to traditional coffee drinkers, families and younger consumers through a fast-food franchise model. Starbucks is a more upscale coffee house serving premium roasts and authentic espresso beverages through a “slower food” franchise model, with less emphasis on food items. 

My tastes lean towards Starbucks over Tim Hortons for several reasons. First, I’m a premium dark roast kinda guy, and I also like traditional espresso (vs. Tim Hortons fast food version). Further, the publicly trades shares of Starbucks are far more appetizing than those of Tim Hortons at this time, no matter which way you like your coffee. I do not own either stock for personal or professionally managed portfolios that I run, but the contrast between their technical profiles is intriguing. 

Starbucks stock had a rough year, having seen a peak price back in March of over $60/share. However, some constructive price action may be beginning for SBUX at this time. After bottoming at the beginning of August at $43, the stock rallied to $52 only to fall again into October. After hitting a higher low point of just over $44in late October, the stock staged a massive high volume gap-up in early November to $52 on a positive surprise in its Q3 earnings report. The stock now sits well above its 50 day MA.  It has been trying to break through its 200 day MA which sits at around $51 at this time. Both MA’s are now sloping up. Old support (new resistance) at $51–as I’ve marked on the chart– has created a neckline to what could be a double-bottom formation for SBUX. A breakout with volume through the $51-$52 neckline targets $56 (first resistance on chart) to $60 (former high-zone).

Tim Hortons shares (I’ve posted the US chart) also had a tough second half, peaking in April at just under $58. The stock drifted in the low $50’s after its initial pullback in May. Rather than sharing SBUX’s gang-buster Q3 report in early November, THI staged a disappointing Q3 report. A long ugly black candle denotes the 8% one-day drop for this Canadian icon’s share price.  The stock is now well below its 50 & 200 day MA’s. The weekly chart (not shown) suggests a target as low as $42. 

 

The contrast between these two coffee mavens shows us that not all stocks in a given industry or sector need be equal. James O’Shaughnessy’s classic book “What Works on Wall Street” names surprise earnings reports (positive or negative) as one of the leading determinants for stock price appreciation going forward. O’Shaughnessy’s findings seem to back my technical prognosis of these two charts.That is, the positive surprise by SBUX may lead to future upside potential, while the negative surprIse may spell trouble ahead for THI.

4 Comments

  • ” A long ugly black candle denotes the 8% one-day drop ” Actually I like buying into those big down candles especially if they start well below the 20 MA when the 20 MA is below the 50MA and the 50 MA is below the 200 MA. And when all three MA’s are sloping downward. In time those big down gap candles are closed (in many cases) if such a scenario takes place but you have to be patient and be able to withstand some more downside before it happens

    Reply
    • I never attempt to catch a falling knife–better to wait for consolidation and then bounce confirmation. RIM watchers kept asking the same thing-amongst others.

      Reply
  • Rimm is an excellent example of a gap way below the 20 day MA getting filled. Observe the gap in late june on the daily chart well below the 20 day with the 50 and 200 MA all sloping down. The gap has easily been filled for a tidy profit. It’s amazing how many times those gaps are filled.

    Reply

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