Starbucks may be bottoming after painful pullback, TradingAnalysis.com’s Todd Gordon says

FAN Editor

Starbucks‘ burning-hot rally turned ice-cold over the past three months.

The coffee chain has tumbled 14% since the end of August, missing out on the broader markets’ 7% surge. The stock’s rally cooled off after peaking in July.

Todd Gordon, founder of TradingAnalysis.com, has tried to time the bottom twice, but he says the technical set-up suggests the pain is finally over.

“I’ve taken two shots, no pun intended, at this Starbucks pullback. I think we’ve now reached support,” Gordon told CNBC’s “Trading Nation” on Thursday. “I like the set-up. I’m going to try a third time again with defined risk.”

Gordon says there are several sources of support that should prevent Starbucks from any further downside.

“There’s a few sources of support specifically. If we were to do an uptrend here from mid-2018, extend that trend line up, it is intersecting the price right on top of this dotted moving average, which is also the 200-period moving average. So we have a bit of support here,” said Gordon.

“You can also make the case [that this is] perhaps an inverse head and shoulders here which is just simply a low, followed by a new low, higher low — sort of a swing failure which could indicate a reversal in price right in that region here, so I like this on the pullback,” said Gordon.

To take advantage of a stabilization, Gordon is putting on a calendar spread — he is buying 80 calls with Feb. 21 expiration and selling the 87 call with Dec. 20 expiration. He’s making a calculated bet that Starbucks will stay above $80 with upward movement up to $87, or 5% higher, by the end of February.

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