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Starbucks May Be Bottoming

The stock has been straddling its 200-day moving average since late January but has been unable to find its footing.
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Starbucks (SBUX) may be in the early stage of a significant bottom. The stock has been straddling its 200-day moving average since late January but has been unable to find its footing. Late last week, and again earlier this week, SBUX retested its 2014 lows and it is now attracting some attention. A bottom in this area, just below $69.00, could provide the base needed for a healthy rebound rally.

In early December, Starbucks experienced a trend breaking sell off. On Dec. 10, the stock fell nearly 3% on its heaviest downside trade of the year. SBUX consolidated for the remainder of December before beginning a new leg lower one month later. By the first session in February, the stock had retraced nearly 50% of the powerful 2013 rally. SBUX held just above the $68.50 area, leaving a huge earnings inspired breakout gap unfilled. The recovery that followed the February low has been very choppy. With a successful retest appearing to unfold this month, a return to a more positive trend may be on the way.

Starbucks (SBUX)

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Prior to yesterday's market-wide upside reversal, SBUX drifted below the previous week's lows as well as the February bottom. The stock filled the July 26 breakout gap in the process and, with today's 2% gain, is now up just shy of 3.5% from Tuesday's low. I believe this is an encouraging sign that a base is beginning to form. In the near term, I regard purchasing SBUX below the $69.50 level as very low risk.

A close below $67.00 on accelerating trade would send a clear sign that a solid base is not yet in place. I am long SBUX and added a small amount yesterday. Starbucks is due to report their second-quarter results after next Thursday's close.

At the time of publication, Morrow was long SBUX.