GPRO Stock: Trend Reversal?
GoPro surprised many investors when its shares finally hit the market; even I was a skeptic. The initial public offering (IPO) price was $24.00 per share. On its first day of trading, GoPro Inc (NASDAQ:GPRO) stock closed at $35.67 per share. Four months later, on October 7, 2014, GPRO stock hit a high of $93.85. This stock proved to be a great success, returning investors a gross return of 163% if you purchased on the first day of trading.
Sadly, that is where the good news ends for GPRO stock. It was all downhill since that fateful day. From peak to trough, GoPro stock lost 90% of its market value. The skeptics had finally proven their merit.
Bear markets and price bubbles usually end after company shares have lost 90% of their value. Does this mean that the worst is over for GPRO stock?
Let us delve into the charts to see if any patterns or signals can shed some light on the situation.
The following chart illustrates the death cross that foretold of further selling pressure:
Chart courtesy of www.StockCharts.com
By the middle of 2015, GPRO stock had already lost its luster in the eyes of speculators. In August 2015, the moving averages attempted to generate a golden cross, but that was quickly averted and a death cross was generated on September 29, 2015.
A death cross is a bearish signal that appears on the chart when a faster moving average (50-day moving average) crosses below a slower moving average (200-day moving average). Traders use this signal to confirm a bear market is on the horizon. It is always wise to trade in the direction of this signal, albeit a neutral or short position.
The current signal is still bearish, thus there is little good news from this signal.
The following chart may have some potential that the bulls are looking for:
Chart courtesy of www.StockCharts.com
GPRO stock is now coming into an important area of resistance. Shares are challenging the 200-day moving average. At the same time, a possible double-bottom pattern has emerged.
The 200-day moving average is significant because investors use it as a dividing line between stocks that are in a bull market versus stocks that are in a bear market. Closing above this moving average line will be the first piece of good news for GPRO stock.
A double bottom is a reversal pattern that appears at the bottom of the trend. It is marked by two consecutive bottoms, separated by a peak. The pattern is confirmed when shares close above the peak that separates the two bottoms.
The horizontal resistance level marked by the peak between the two bottoms also coincides with the 200-day moving average. A break above this price would signal a key reversal on two fronts. Traders refer to this as a double buy signal. Two distinct camps will switch their bias to bullish if shares can close above the aforementioned level.
Double-bottom patterns also benefit traders in generating possible price objectives. This reversal pattern projects a potential price target of $19.25.
The Bottom line on GPRO Stock
GPRO stock has had its share of love and hate. Investors have had a real emotional roller coaster ride with this position. After losing 90% of its value, there may be reasons to be optimistic. Based on the double bottom, $19.25 is a potential target that represents a return of 30% from current levels. A proper risk-reward strategy could be used to capture some of the upside potential while limiting potential losses. Always wait for confirmation and have an exit strategy before you commit to a position.
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