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Coffee Prices & Starbucks: Any Connection?
It's Monday, and I am here talking with Jeffrey Kennedy, editor of Elliott Wave International's Futures Junctures Service, where subscribers get news of daily and longer-term opportunities in commodity futures.
Vadim Pokhlebkin: Jeffrey, let's talk about coffee. Like prices of most soft commodities, coffee has been trending down this year – but what's interesting, have you noticed that the price of Starbucks (NASDAQ:SBUX) has also been sliding? On the first trading day of this year, one share sold for about $18; in October, it fell to about $9. Do you think there is a connection here?
Jeffrey Kennedy: Interesting observation. Well, yes and no. Yes, because coffee prices and Starbucks shares have indeed fallen, like you said. But it's probably incorrect to think that one has caused the other; rather, both Starbucks shares and coffee prices have been falling because of the bear market we've been in.
VP: But is it normal for a commodity to fall with a related stock, or the broad stock market?
JK: In a period of contracting credit and rising fear, when cash becomes "king" – which is what we've been experiencing – probably so. Of course, that's the part my colleagues who write for our Elliott Wave Financial Forecast focus on; I only focus on forecasting commodity prices.
VP: Right. But speaking of Elliott Wave Financial Forecast, it's worth mentioning here another element that has likely impacted Starbucks stock: social mood. The EWFF editors have long been saying that Starbucks' fortunes would decline when the bull market in social mood turns to bear, and the public stops feeling the need to be "energized." That's exactly what's happened. By Starbucks own admission, the "recent disappointing performance" of their stores was caused by "a new unwillingness among coffee drinkers…to pay top dollar for stimulants.” That's what they said back in May; notice the "new unwillingness" part.
JK: Interesting.
VP: I think it's more than interesting – it's fascinating to watch the tide of social mood lift and sink various investment "boats." But getting back to coffee: where are we in the wave pattern?
JK: Coffee is the market I focus on in tonight Daily Futures Junctures. (Nov. 10, online now – Ed.) Bottom line, prices appear to be following the longer-term path I suggested in last month's Futures Junctures, which we published on October 15. (New Monthly Futures Junctures comes out this Friday, 14 – Ed.) Shorter-term, coffee has essentially traded sideways since October, for about five weeks now. I believe the Elliott wave pattern prices are in is a Contracting Triangle.
VP: And that means…what?
JK: It means that coffee has been moving sideways, up and down, in a 5-wave, overlapping pattern that Elliotticians label ABCDE. That's a triangle; by my count, we are almost at the end of it. If – or, rather, when – prices break through 109.35, the extreme of wave D, watch out. I explain everything in tonight's issue. (Nov. 10, online now – Ed.)
VP: You know what the June 2008 Elliott Wave Financial Forecast called Starbucks? "The blue chip exploiter of this bull market’s coffee binge." I wonder how the story ends, now that the bear market is here… Thanks, Jeffrey, I enjoyed our talk, as usual.
JK: My pleasure!