Groupon Inc: The Run in GRPN Stock has Only Begun
GRPN Stock: Bullish Expectations
Groupon Inc (NASDAQ:GRPN) stock is having a stellar year, up 64% year-to-date. This is a considerable sum and, given that we are in the month of September, it is always wise to keep a close eye on your investments in case they derail. Nothing feels worse than giving up gains that turn into losses. My best advice is to prepare for the worst, and if your expectations do not occur, then it is always better to be pleasantly surprised.
2016 is the year in which I actually began to like GRPN stock, not because I use its services, but because the chart pattern piqued my interest. Up until that defining point, Groupon stock was a terrible investment that was effective at destroying wealth and probably left many investors in tears.
The following chart illustrates the defining moment that first piqued my interest in GRPN stock.
Chart courtesy of StockCharts.com
A downtrend had dominated GRPN stock since this company first went public in 2011. The downtrend line, highlighted in blue, is created by connecting the peaks. A downtrend is defined by a trend that drifts from the upper left to the lower right. A series of lower lows followed by lower highs make up the predominant trading action within this trend. This is referred to as bearish pricing action.
Excitement first caught my eye when I noticed that GRPN stock finally broke above of the downtrend line on July 28, 2016. The pattern of lower highs and lower lows had ceased and, in theory, this action suggests that, at minimum, a trend reversal is in place. If enough signals can confirm the trend reversal, this event could also mark the end of the bear market.
The following Groupon stock chart illustrates the other signals that confirmed the trend reversal.
Chart courtesy of StockCharts.com
There is quite a bit of information on the above chart, and I will explain the developments in chronological order.
In April, Groupon stock generated a golden cross, which indicates that a bull market is on the horizon. The signal is confirmed when the faster moving average (50 day-moving average) moves above the slower moving average (200-day moving average). This marked the first piece of bullish news that supported the notion that GRPN stock was going to test its downtrend.
In July, Groupon stock averted generating a death cross. A death cross is the exact opposite of a golden cross, and indicates that a bear market is on the horizon. Averted signals are powerful indicators and have a habit of adding fuel to an already-existing signal, similar to adding nitro into a race car. The averted signal was the precursor prior to the trend break.
Later that month, GRPN stock put in a price gap that effectively broke the downtrend line in dramatic fashion. The earnings news that drove this gap had the consensus of the crowd behind it as shares opened trading above the downtrend line. Breakaway gaps rarely get filled and almost always signal that a new trend has started. It is not uncommon for these gaps to present themselves at major turning points.
The share price proceeded to surge until the move became extended as Groupon stock approached $6.00. GRPN stock is now trading against this prevailing trend and is effectively in a counter-trend, moving against the predominant trend. The recent weakness will end when support is found.
The first level of support can be found at the 50-day moving average. The next level of support is at $4.50, which marks the low after the breakaway gap. It is not uncommon for stock to backtest a previous level of resistance, thus the downtrend line is another possible level of support if selling in the markets becomes a predominant theme.
The Bottom Line on Groupon Stock
GRPN stock is in the early innings of a new bull market. The current weakness in the markets may produce an opportunity for those looking to acquire shares at important levels of support. My bias will continue to be bullish on Groupon stock, and will remain bullish up until the point that the charts give me reason to change that bias.