EXPE Stock: Setting Up to Move
Expedia Inc (NASDAQ:EXPE) stock represents an e-commerce company that operates in the business segment of online travel bookings. They have many web sites under which they operate, a few examples being Expedia.com, Hotels.com, Hotwire.com, and CarRentals.com. The list goes on, as they have expanded in many markets outside of North America.
Expedia’s largest competitor is Priceline Group Inc (NASDAQ:PCLN). From a valuation perspective, EXPE stock is much smaller, with a market cap of $17.0 billion versus PCLN stock’s $71.0 billion. Their revenues are comparable with Expedia, producing $7.74 billion, with Priceline producing $9.81 billion. The main difference that separates these two is that Priceline is doing a better job at managing their margins. Priceline has managed to convert that revenue into $2.66 billion in net income vs. Expedia’s $193.74 million in net income. As a result, Priceline’s higher valuation is justified and warranted.
Delving further into the numbers, the fundamentals on EXPE stock may be a bit stretched, as Expedia stock is trading at a price-to-earnings multiple of 84.77. The fundamentals leave me with more questions than answers in regards to the company’s valuation, but fundamentals are not the only tool I utilize to analyze a company. Charts are indeed my go-to tool and I have yet to make a decision without the charts supporting my trading bias. With that in mind, perhaps the charts can help shed some light on Expedia stock. Expedia stock has been known for rewarding investors with positive returns over the years.
The following EXPE stock chart illustrates the developments in the current trend:
Chart Courtesy of StockCharts.com
Expedia stock has spent the majority of 2016 trading within an ascending triangle. An ascending triangle is made up of two trend lines: an upward-sloping trend line, representing support, and a horizontal trend line, representing resistance.
Each and every time that EXPE stock approaches resistance at $118.00, sellers step in and halt any further price appreciation. Each sell-off in the stock ends at a higher low as buyers are willing to step in and support the stock at higher prices. On average, these patterns resolve themselves in a bullish manner, but that is not always the case.
In August 2016, EXPE stock generated a golden cross. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). Traders use this signal to confirm a bull market is on the horizon. Keep in mind that it is always wise to trade in the direction of this momentum indicator.
It is difficult to place a bias based on this chart while the pattern is still in play. My caution is warranted because the prevailing trend was down prior to the pattern establishing itself. A sustained close above $118.00 would restore a bullish bias, while a close below $100.00 would restore a bearish bias. Until the trade is resolved, my bias is neutral.
The following Expedia stock chart illustrates some bullish price behaviour on a short term:
Chart Courtesy of StockCharts.com
There are two distinct bullish items on the chart above.
The lower panel on the chart above is labeled “MACD.” MACD is a simple and effective trend following the momentum indicator. Signal line crossings, along with changes in the histogram, are used to distinguish between bullish and bearish signals.
Currently, EXPE stock is about to generate a “buy” signal as the daily MACD will cross in a bullish manner and the histogram will go positive. Essentially, momentum has unwound, and now resurgence to the upside can once again begin.
The structure of the wave pattern is also bullish and supports the same picture I am receiving from the MACD signal.
Impulse waves (highlighted in green), followed by a consolidation wave (highlighted in purple), characterize the current move in share price this summer. Healthy bull market trends are littered with such price actions. These patterns serve as a guide for both trading and protecting profits.
The MACD signal is potentially lining up to accompany a breakout of the consolidation wave. A close above $116.00 would confirm this premise and produce a price target of $129.00. This would bring significant news because this would also resolve the ascending triangle in a bullish way and allude to a resumption of the longer-term trend towards higher prices.
I am awaiting a resolution of the triangle before I can produce a trading bias on EXPE stock. There is some evidence pointing to a test of the horizontal line that defines this triangle. When this level is penetrated, my bias will swing to bullish, but until then, I am neutral on Expedia stock.