Yelp Stock: As Anticipated
In my previous report on Yelp Inc (NYSE:YELP) stock, I retracted my bullish view and stood with a neutral stance because I had reason to believe that a sell-off was ensuing.
My investment views are based on the signals and patterns that prices produce on a stock chart. This method is known as technical analysis, and I have been using this method effectively for over a decade to produce investment strategies.
The reason why I retracted my bullish stance in my previous report was that Yelp stock had broken below a trend line that had supported the price since it bottomed in early February at $14.53. Trend lines are simple yet effective tools, and perhaps one of the most important tools I contain in my toolbox.
I was also bearish with regards to the month of October, as many bottoms in equities and stocks occur in that month. So, as much as I would like to take credit for calling a Yelp stock bottom in that month, I must acknowledge that this feat was nothing but sheer luck. The level at which the price bounced, on the other hand, was not luck.
In my report, I believed that a major level of support was going to be tested, and this is, in fact, what happened. Anyone who was anticipating this level of support had an opportunity to acquire shares on the cheap, because the price quickly bounced off of that level of price support. Holding that level of support is very constructive and, as a result, I am once again bullish on YELP stock.
The following YELP stock chart illustrates the level that I was anticipating would act as a price support.
Chart courtesy of StockCharts.com
The level of support highlighted above was a previous level of resistance. It took numerous attempts to break above this level and, when this level was finally broken, it was done in a dramatic fashion as the price gapped above it. When a major level of resistance is broken, it becomes a level of support, and it is not uncommon for a price to return on a later date to test this level from above.
In late October, Yelp stock tested this level of support and, once again in dramatic fashion, the price bounced off this level, leaving a gap on the price chart. This level of support now defines the risk of this Yelp stock. As long as Yelp remains above this level, Yelp stock is bullish.
The golden cross generated in June serves to reaffirm my bullish view. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. This signal is used to indicate that a bull market is on the horizon and, as result, it creates a bullish tailwind.
This indicator was in bullish alignment, as support was being tested and, as a result, it increases the odds that the levels of support will hold.
The following Yelp stock chart illustrates the trend line break that caused me to retract my bullish view.
Chart courtesy of StockCharts.com
In early October, Yelp stock broke below an uptrend line that supported the price since early February. This break of a trend line caused me to retract my bullish view.
The same trend line will act as a trigger to withdraw my bullish bias once again. Let me explain: when a trend line breaks, it is not uncommon for a price to return and hit it from the other side. Traders refer to this price action as a backtest. These backtests are mainly seen with horizontal trend lines, but they also apply to uptrends and downtrends.
This bullish run in Yelp stock looks as though it wants to hit that uptrend line from underneath. There is a long-term level of resistance that stands at $49.00, and this seems like a likely price objective for Yelp stock to test the uptrend line from underneath. If this backtest occurs, I believe that another correction in the price could ensue.
Bottom Line on Yelp Stock
I am once again bullish on Yelp stock, as the price support has held and the price of Yelp stock is once again trending higher. I am targeting a backtest of the uptrend line as the next level of resistance.