GRPN Stock: Holding the Line
In my last update, I published a report that supported my bullish view on Groupon Inc (NASDAQ:GRPN) stock. My bullish view was first spawned on the notion that a long-term downtrend had been broken. This bullish view was reaffirmed by the price action as GRPN stock began to trend by behaving in a bullish manner.
There has been a slight setback in the price of Groupon stock. In November, GRPN stock reported earnings and the price took a tumble on the news that Groupon Inc is in the process of acquiring its long-time rival Living Social, Inc.
Investors showed their disapproval by sending GRPN stock down 22%. Not all the news from this earnings report was bad, however. The silver lining in this report was that the active consumer metric continues to grow as Groupon continues to attract new customers in local markets and abroad.
Investors’ reaction to the news of this acquisition has merit because management is spending money to acquire a rival, but they have failed to produce a profit. An acquisition can entail further share dilution and/or debt. I believe that investors failed to focus on customer growth, as I believe this is the most important metric from the report. The good news is that the sell-off failed to do any technical damage to the Groupon stock chart.
The following GRPN stock chart illustrates the signals that continue to provide a bullish tailwind.
Chart courtesy of StockCharts.com
Healthy bullish trends encompass impulse waves that are followed by consolidation waves, which then give way to further impulse waves. Impulse waves end in overbought or oversold conditions, and the consolidation wave is where these conditions are alleviated. Once an overbought or oversold condition is alleviated, the door is open for another impulse wave to develop.
This is exactly the bullish price action that is illustrated on the GRPN stock chart above, and my bullishness for Groupon stock stems from such a price action.
Price action alone is not a reason to be bullish, as I require multiple signals to confirm my view.
In April 2016, GRPN stock generated a golden cross. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. This signal confirmed that a bullish trend had begun.
In July 2016, a death cross was generated in the Groupon stock chart. This signal is the complete opposite of a golden cross, and it assumes that bearish headwinds are gaining momentum. This signal was quickly averted, and the golden cross was reinstated.
Averted signals are extremely powerful indicators because they illustrate that the bearish camp was unable to gain momentum. This usually results in an acceleration of a trend. The averted signal fueled the impulse wave that followed, and GRPN stock managed to make a new 52-week high.
The drop in share price in October has added some caution to my bullish view, but the following Groupon stock chart illustrates why I am still bullish.
Chart courtesy of StockCharts.com
There are numerous indicators on the chart above, but none are as important as the uptrend line that is highlighted in blue. This trend line defines the bull market in Groupon stock, and it is currently being tested. This trend line needs to hold, or else my bullish view could be in jeopardy.
The volume confirms my bullish view, as positive days have seen higher volume because more participation is apparent on up-days. The boxes highlighted in green illustrate how the volume on up-days overwhelms the volume on down-days. This ties directly with the on-balance volume (OBV) indicator.
The OBV indicator uses volume to compute buying and selling pressure. It is produced by cumulatively adding volume on up-days and subtracting volume on down-days. This indicator continues to make new highs, as buying pressure remains high and indicates that investors continue to accumulate Groupon stock.
The Bottom Line on Groupon Stock
Even though there has been a slight setback in Groupon stock, my bias remains bullish. My bullish view is dependent on signals, but none are more important than trading above the uptrend line. If the price breaks below that level, I would have to review my outlook on GRPN stock.