TRVG Stock: A New Bull Market in Development?
We have all heard of the investment strategy of buying low and selling high. In theory, this is an excellent strategy. This is why investors like to look for stocks that have fallen from grace in hopes of picking them up after they have bottomed, with the intent on capturing the largest gain as possible.
The problem is that this simple sounding strategy is not easy to apply as it sounds. The hardest part is actually trying to pinpoint exactly when a stock has bottomed. This is why traders have coined the phrase “do not try and catch a falling knife,” because, in the literal sense, you might get cut as its slices below your perceived bottom towards much lower prices.
Here is the thing: once a downtrend has begun, it usually lasts longer and drops further than many would have perceived possible. The reason being is that sometimes, in order to for a bearish trend to run its course, the stock price needs to overshoot to the downside, inflicting the most pain on sentiment. This overshoot to the downside is why the most optimal point to buy a stock is right after it has bottomed.
Which brings me to the reason why I am currently focusing on tech company Trivago NV – ADR (NASDAQ:TRVG) stock once again. I originally focused on Trivago stock back in August.
I outlined in that article that I had inclination to believe that TRVG stock was approaching a bottom because a number of technical indicators were not confirming the recent bout of stock price weakness. This non-confirmation was indicating that the trend towards lower prices was about to turn, and all Trivago stock needed to do was close above a level of price resistance which resided at $4.85.
$4.85 was not an arbitrary level of price resistance. That’s why I have provided the following stock chart to illustrates its significance:
Chart courtesy of StockCharts.com
This TRVG stock chart illustrates that the $4.85 price point marked a level of price resistance outlined by a downtrend line. This is a simple trend line that defines and captures a bearish trend. Creating it was a simple as connecting the peaks that appeared on the chart.
In September, Trivago NV – ADR finally sustained a close above this level of price resistance, suggesting that the bearish trend had run its course and opening up the door for higher prices to prevail.
This suggestion was not ill-founded, because a higher stock price has prevailed. And since that fateful day in September, TRVG stock has appreciated to the tune of 27.84%.
Which is why I am focusing on Trivago stock once again. The recent bout of market strength has generated a supporting signal possibly suggesting that a new bull market is now in development. This signal is captured on the following price chart:
Chart courtesy of StockCharts.com
The chart above highlights a technical indicator known as the “200-day moving average,” the average price of the stock over the last 200 trading days, which equates to approximately the average price over a one year period. It is assumed that if the stock price it trading above this average that a bull market is in development and that higher prices are more likely, while trading below it implies a bear market and therefore lower prices.
It was only a matter of days after the downtrend line was broken that Trivago stock was testing the 200-day moving average, and now it is currently trading above it. As long as the stock can continuously sustain a close above this metric, it will indicate that a new bull market is now in development, and therefore higher stock prices are likely to prevail.
I am bullish on TRVG stock because recent technical developments are suggesting that Trivago stock has finally found a bottom, and that a new bullish trend has begun its development.