Yelp Inc: Chart Suggests Yelp Stock on the Verge of Technical Breakout
YELP Stock: At a Crossroad
I chose to highlight Yelp Inc (NYSE:YELP) stock in this article because it presents an opportunity to witness and be a part of an investment that is currently at a crossroad. It is at that point in time that Yelp stock could either see a bull market and regain its footing or experience a bear market that will ravage its share price.
YELP stock began trading in February 2012. For the next year, the share price was range-bound between $15.00 and $30.00. In July 2013, YELP stock broke out of that range and proceeded to make an all-time high of $101.75 per share in March 2014. Following that high, shares began to drift lower. By February 2016, YELP stock was once again trading at $15.00 per share. For investors, this was a round-trip ticket from $15.00 to $100.00 and back again.
The question that remains is this: in which direction will YELP stock trade next?
The following chart illustrates the current signal generated by using moving averages:
Chart courtesy of www.StockCharts.com
On March 13, 2015, YELP stock generated a death cross. A death cross is a bearish signal that is produced when a faster moving average (the 50-day moving average) crosses below a slower moving average (the 200-day moving average). Traders use this signal to confirm a bear market is on the horizon.
Once this signal is generated, traders are served best by trading in that direction. Trading positions should be either short or neutral.
The death cross signal was almost averted in the fall of 2015, but it quickly regained its footing and the share price proceeded to be decimated. The share price fell 73% within two years of this bearish signal.
The good news is that in mid-June 2016, the moving averages executed a golden cross. If you are not familiar with this signal, it is the exact opposite of the death cross; it confirms a bull market is on the horizon. Following a golden cross, trading positions should either be long or neutral.
My concerns lie with the following YELP stock chart, which illustrates the stock’s share price performance since its initial public offering:
Chart courtesy of www.StockCharts.com
The above chart is confusing, as it should be. I explained earlier how YELP sock has come to a crossroad—a fork in the road, if you will—and the chart above is why.
Multiple patterns are emerging, embedded within one another. On its own, this is not an uncommon phenomenon. Most of the time, the patterns confirm each other—bullish patterns embedded within each other. This time, though, the patterns contradict each other.
The horizontal support could be interpreted as a giant double-bottom pattern, but I will disregard that scenario at the moment because it will only be confirmed with a rise above $100.00. It is a possibility, but if we wait until the share price moves above $100.00, we miss that entire run.
Instead, my main concerns lie with a pattern that could possibly present itself. The pattern is currently tracing out a possible right shoulder, which would complete a head-and-shoulders pattern. This pattern will only be confirmed if the share price falls below $15.00. If this pattern occurs, the price objective would equate to a target of $0.00. This pattern would be signaling financial doom for YELP stock and its shareholders.
YELP stock is currently sitting at that exact point where it could turn down and complete the right shoulder of the aforementioned pattern, or the share price could break above resistance and avert the head-and-shoulder formation. The resistance level is highlighted in red and marks the high of the trading range and the left shoulder.
YELP stock has also provided us with an uptrend line.
Chart courtesy of www.StockCharts.com
This line represents the price action of YELP stock since shares bottomed in early 2016. The trend is clear and defined. As long as shares are trading along this trend line, the premise is bullish. A break below the trend line at this important juncture would be very concerning for Yelp bulls.
The Bottom Line on YELP Stock
YELP stock is currently on a golden cross that has bullish implications. In order for the bull camp to prevail, the share price must break above resistance at $32.00 and maintain the uptrend that has been in effect since shares bottomed in February 2015. Failure to meet these conditions would be of grave concern to Yelp stock bulls.
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