Chart of the Day (x2): $GRPN – Collective Buying Power

by Dan December 26, 2013 1:32 pm • Commentary

It’s hard to talk about the internet stock darlings of 2013 and not mention the 150% gains in GRPN, a stock that caught notoriety last year after its initial IPO success, only to lose close to 90% of its value from the highs.  Despite this year’s gains, and the recent 40% gains in the last month, the stock is still 50% below the 2012 highs.

Will 2014 be an equally successful year for GRPN? Your guess is as good as mine, but my sense is that the company’s shift towards direct selling of goods, away from their daily deals model, putting them in direct competition with e-commerce behemoths like AMZN and bricks and mortar retailers like COST & TGT will be one that dramatically strains overall company margins, and thus possibly straining the stock’s performance.  For more on the fundamentals, check out Enis’s “Deep Dive” post from late September, here).

As for the technical set up, the last month’s bounce came from a VERY interesting pivot point.  The one year chart below shows what appears to be a spike bottom (circled) back in late November, with a bounce off important technical support at its 200 day moving average (yellow line).

GRPN 1 yr chart from Bloomberg
GRPN 1 yr chart from Bloomberg

The stock’s subsequent bounce has come though to a fairly important juncture, just this morning touching the uptrend that has been in place from the March lows, near $4!  Why do I think the move to the uptrend is important?  Well, because it is on the wrong side of it.  Back in late October, when the stock broke the uptrend to the downside, the stock made lower lows and spent the last 2 months below that level, for all intents and purposes it became a broken stock.  Now the stock is back, and what appears to be on so-so volume.  If I were inclined to try to short the stock, this would be the spot, keeping a stop just above the 52 week high of $12.76.

At least one trader expected these levels either late in the year or next month as we had reported 2 weeks ago in our Too Many Options post on Dec 12th when a trader rolled up some Jan calls:

Selling 17k Jan 10 calls at .99 to close and bought 17k Jan 12 calls for .27 to open.

I am gonna stick to the old trading idiom, “Never Short a Dull Market”, not that new highs in the SPX everyday are dull, but it is holiday trading on light volume, let’s give it a little time, because the other ol’ trading phrase “when the cats are away, the Bulls will play” (I just made that up) could make it hazardous for new short positions!