TRVG Stock: Positive Divergences Suggest the Bearish Trend Is Losing Steam
The ultimate trading strategy is a simple concept. Buy a stock at a low price and sell it at a high price. As a concept and investment strategy, this seems easy enough. In practice, it is not so easy to execute. Investors fall into many pitfalls that take a simple concept, such as this one, and turn it into a losing venture.
Buying stocks after they have bottomed, following a significant downturn, has proven to be the best and most opportune time to buy a stock using the “buy low and sell high” mentality. The difficulties lie in being able to correctly identify when a stock has finally put in a bottom.
I am currently highlighting Trivago NV – ADR (NASDAQ:TRVG) stock because I believe it is possibly approaching a bottom. That makes it an excellent candidate for a “buy low and sell high” investment strategy.
The reasons why I believe that a bottom may be forming in TRVG stock are all technical in nature. Therefore, they are all based on the price action and technical signals that have been generated on the Trivago stock chart.
The price action and technical signals I am currently watching are highlighted on the following Trivago stock chart.
Chart courtesy of StockCharts.com
This TRVG stock chart illustrates a bearish trend that began in July 2017, after the stock price peaked at $24.70.
This progressive move toward lower prices has been characterized by price action containing a sequence of lower highs and lower lows. This is the quintessential characteristic that defines a bearish trend.
The downtrend line annotated on the Trivago stock chart was created by connecting the peaks created by the price action. This downtrend line is very important because it defines the bearish trend by pinpointing where price resistance currently resides.
The downtrend line currently suggests that resistance resides at $4.85. In order to negate the bearish trend and suggest that a bottom is forming, TRVG stock needs to break above it. Otherwise, Trivago stock would still be in a bearish trend, a bottom would have yet to be put in, and lower prices would be likely to prevail.
TRVG stock has just recently tested this downtrend line, meaning it is ever so close to breaking above it and ending the bearish trend that began in July 2017.
Such a development would open the door to higher prices. This would suggest that a bottom has finally been put in. Such an event may actually be on the horizon because the indicators located in the lower panel are suggesting that the bearish trend is losing steam.
Relative Strength Indicator (RSI)
The first technical indication I am watching is the relative strength indicator (RSI).
RSI is used to determine whether a stock is overbought or oversold. These extremes are measured using an oscillator that fluctuates between zero and 100. An RSI reading above 70 suggests that a stock is overbought. An RSI reading below 30 suggests that a stock is oversold.
During this downtrend, RSI has dropped into and touched oversold territory three times. Each time Trivago stock has done so, the TRVG stock price has bounced.
These three instances have created a positive divergence—every time RSI has fallen into oversold territory, the signal has made a higher high while the stock price has continued to make new lows. This divergence is suggesting that the trend toward lower prices is losing steam.
Percentage Price Oscillator (PPO)
The next indication I am watching is the percentage price oscillator (PPO).
PPO uses the crossing of a signal line to determine whether bullish or bearish momentum is influencing the price action in a stock. Bullish momentum implies that a stock is geared toward higher prices. Bearish momentum implies that a stock is geared toward lower prices.
Momentum is a very powerful and impactful force. It is why a stock cannot sustain a trending move in either direction unless the applicable level of momentum is supporting it.
The first bullish PPO signal in January 2018 halted the stock’s decline on an intermediate basis. The stock did manage to stage a brief advance, but that was quickly negated when a bearish PPO signal appeared. This bearish PPO signal suggested that, once again, the path of least resistance was geared toward lower TRVG stock prices.
In July, a bullish PPO signal was generated. It is currently suggesting that Trivago stock is once again geared toward higher prices. This signal is also showing a bullish divergence because the PPO indicator did not make a new low concurrent with the TRVG stock price.
These divergent signals are suggesting that that bearish trend toward lower prices is losing steam. This suggests that the downtrend line may soon be broken. This will ultimately suggest that TRVG stock has finally found a bottom, providing the optimal point to execute a “buy low and sell high” strategy.
I believe that when Trivago stock breaks above price resistance outlined by the downtrend line, it will suggest that TRVG stock has finally found a bottom. This will open up the door for a new bullish trend to develop.