GRPN Stock: Testing Resistance
I am focusing on Groupon Inc (NASDAQ:GRPN) today because this stock has made some serious progress after it put in a bottom in mid-June. This progress is now challenging a very important level of price resistance. That could open the door to challenge a metric which could suggest that the bear market that pillaged GRPN stock investors is finally complete, and that a new bull market is on the horizon.
Given the magnitude of the bear market rallies that Groupon stock has experienced in the past, one can only imagine the opportunity that a sustained bull market would offer.
This constructive view in Groupon stock was developed by simply analyzing the price action that has occurred on the company’s stock chart. This method of analysis, known as technical analysis, is based on the notion that historical data points can be used to discern a trend and forecast future stock prices. I have been using this method to create trading strategies for close to two decades, and I have enjoyed many successes.
Groupon shares are currently staging an advance. In order to even suggest that a bull market is in development, a number of hurdles need to be overtaken.
The following Groupon stock chart illustrates the first hurdle that the GRPN share price is attempting to clear.
Chart courtesy of StockCharts.com
This GRPN stock chart illustrates that the share price is currently testing the 200-day moving average.
The 200-day moving average is created by averaging the stock’s closing price over the preceding 200 days and plotting that value on a chart. This creates a smoothed trend indicator that captures the average price over that time frame. This moving average is very popular among the trading community, and it is used as the line that separates a bullish investment from a bearish one.
Using this moving average is quite simple, and discerning a bearish investment from a bullish one is as easy as noticing whether the investment is trading above or below this moving average.
Groupon stock is currently trading below the 200-day moving average, suggesting that this investment is casting a bearish shadow. This shadow was cast in the beginning of March, when the share price failed to maintain its footing above this moving average. After falling below this moving average, the share price proceeded to lose approximately 1/4 of its value before the stock was able to find its footing again.
GRPN stock is now attempting to break above the 200-day moving average which, upon completion, would suggest that this investment is trading with a bullish posture. Such a feat would open the door to challenge a much larger level of resistance that has contained this investment since inception.
The following Groupon stock chart illustrates the large level of price resistance that is acting as the second hurdle that needs to be cleared.
Chart courtesy of StockCharts.com
This GRPN stock chart illustrates a downtrend line that has been in development since this company first began trading publicly. This downtrend line serves to define the bearish trend in this investment.
This downtrend line is created by simply connecting the peaks on the price chart that have occurred since inception. This trend line outlines the quintessential characteristic that defines all bearish trends, which is a series of lower highs. This downtrend line had been acting as the dividing line that has prevented this investment from staging an advance.
In order to even suggest that a bull market is in development, the share price needs to clear this hurdle by trading above it. This downtrend line has been in force for almost six years, so breaking above it will not be an easy feat because the bearish trend is firmly embedded.
If and when GRPN stock can close above the 200-day moving average, it will set the wheels in motion for when this downtrend line will be tested again. The fact that the equity markets are forging new all-time highs creates an added tailwind that could help accomplish this feat, but until this downtrend line is finally broken, I can only speculate as to what may come.
Bottom Line on Groupon Stock
Groupon stock is attempting to break above a very important metric that would open the door for GRPN stock to test the predominant downtrend line. That line has contained this investment since its inception. In order to even suggest that a bullish view is warranted on this investment, the stock price needs to break above this downtrend line.