Definitely Not! If GPRN Stock Can Break Above $4.00, the Upside Could Be Huge
Keep an eye on the $4.00 level for the hated Groupon, Inc. (NASDAQ:GRPN). It’s an important “line in the sand” for GRPN stock.
It wasn’t too long ago when e-mail coupon giant Groupon was one of the stock market’s most popular names. Customers rave about their deals. Investors love the story. The positive sentiment helped shares of GRPN stock climb to over $30.00 during its initial public offering in late 2011, making company insiders rich in the process.
In our well-timed bearish warning on Groupon stock, however, we noted how exotic securities like GRPN stock tend to get extremely popular with mom and pop investors, which makes them extremely overvalued. Groupon was one such company. At its peak, the company sported a market capitalization of over $15.0 billion. That’s a nosebleed valuation for a firm with an unproven business model and minimal profits.
Now with the veneer being wiped clean, Groupon stockholders are starting to come to grips with reality. In the past year or so, GRPN stock has been cut in half before finally finding something of a bottom at the $3.25 level. The question now is, should investors bail? Let’s take a look.
Chart courtesy of www.StockCharts.com
The $4.00 level has emerged as an important resistance line for GRPN stock. This is the price level at which selling is strong enough to prevent the price from rising further. As the price advances towards resistance, buyers become less inclined to buy and sellers become more inclined to bail.
Resistance lines, however, do not always hold up. A break above resistance signals that the bulls have won out over the bears. A break above resistance shows a new willingness to buy, or at least a lack of willingness to sell. Once resistance is broken, stock prices can rally sharply until another resistance level is established. Buyers have increased their expectations and are willing to buy at even higher prices.
The trick is to wait until the market closes above this level before making a trade. In the case of GRPN stock, $4.00 has become the clear resistance level. If the market can close above this level on strong volume, it may be a sign Groupon stock has bottomed.