Groupon Inc: Has GRPN Stock Finally Bottomed?
GRPN Stock: Trend Reversal
Groupon Inc (NASDAQ:GRPN) stock has been a disaster since day one. Shares went public on November 4, 2011, hit their all-time high of $31.14, and then closed the day just off their low at $26.11. That fateful day set the precedent that defined the trend going forward. From peak to trough, GRPN stock lost 93% of its value—not exactly a confidence-inspiring performance.
I could probably continue rambling on about the poor performance of GRPN stock, but that is not my intention. Instead, I am here to be the bearer of good news. It might be hard to even fathom using “good” and “Groupon” in the same sentence when referencing an investment, but that’s just it—I have reason to believe the tide has changed and Groupon could be a good pick to keep on your radar.
The following chart illustrates the downtrend that has dominated the shares of GRPN stock:
Chart courtesy of www.StockCharts.com
A downtrend has dominated GRPN stock since November 2011. The downtrend line (highlighted in blue) is created by connecting the peaks. A downtrend is defined by lower lows and is confirmed by lower highs. It can easily be identified as the price moves from the upper left to the lower right of the chart. This is a clear example of some bearish price action.
The first piece of good news is that GRPN stock finally broke above its downtrend line on August 3, 2016. The pattern of lower highs and lower lows has ceased and, in theory, this action suggests an end to the bear market. I will even go as far as suggesting a new bull market.
Apart from the optimism created from the broken downtrend, there are a few other key factors that are confirming this trend reversal.
Chart courtesy of www.StockCharts.com
In the chart above, I highlighted the volume bars in green. The significance of the volume is that it reaffirms the dominant direction of the share price. In a bullish trend, trading days that close higher should be confirmed with higher volume, and trading days that close lower should be confirmed with lower volume.
The chart above clearly shows that volume spiked as shares surged higher and dropped off as the share price declined. Buyers are becoming a greater share of the participants, which defines and propels the trend forward. The recent surge in price that broke the downtrend line is also accompanied with an increase in volume. Volume is in fact confirming the trend break.
We have further confirmation of the trend break from the on balance volume (OBV) indicator. This 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 is used to confirm the current trend.
In February, GRPN stock went on to make a new low. The OBV did not confirm this new low by making a new low, making this the first sign that a trend reversal was in the making. The current surge higher in share price has been confirmed, as the OBV is making higher highs. This is just another tool investors can use to confirm a reversal.
Last Words on GRPN Stock
The downtrend line that dominated trading in GRPN stock since it first went public has finally been broken. I will be patiently awaiting a setup pattern that will give way to a possible target price for GRPN stock.
The bottom line on Groupon stock is that there is now reason to be optimistic, as the performance going forward may surprise a few.
