Travel services company Expedia (EXPE) continues to be pressured amid a difficult year vs. the broader market and its competitors. Yesterday’s negative note on the company out of Deutsche Bank only added fuel to the fire. Deutsche Bank analyst Ross Sandler downgraded his rating on the stock from Buy to Hold, lowering the price target to $51 from $66. The analyst cited tough competition in the space as his concern, saying Expedia may need to cut guidance for the year.
The stock prices of Expedia’s closest competitors — Priceline.com (PCLN), Orbitz Worldwide (OWW) and Tripadvisor (TRIP) — are all trading handsomely higher on the year, although off their recent highs. None of the three competitors reacted too negatively to Monday’s Expedia-specific note.
Expedia reacts well to technical analysis and has a close following by technical analysts. The stock traded in an orderly manner off its late-2008/early-2009 lows, pushing marginally higher within the confines of an upsloping trading channel in 2010 and 2011. By April 2012 however the stock’s character changed as a major breakout of the channel injected the stock with newfound momentum. This bullish momentum blasted the stock higher in a near-vertical fashion for just about 10 months, but by February of this year the stock topped out and began to tumble.
Through this longer-term lens, however, the stock’s selling in 2013 at least thus far is merely retracing some of the likely irrational behavior from 2012. We see this all of the time in stocks that rally too hard in too short a period — the relentless rally in Apple (AAPL) through much of 2012 and subsequent sharp correction is a great example.
The daily chart shows that Expedia never recovered after a big post-earnings drop in late July, but rather began to trace out a a bear flag. This formation often resolves lower, and would trigger on a daily close below Monday’s low near $47.30; such a move could easily result in a slide toward the $42-$44 area. As such, investors looking to play the stock from the long side may be better off waiting for the company to report its earnings on Oct. 30 and reevaluating after more clarity emerges. Traders looking for a quick play could consider playing the short side of the stock if it breaks down out of the aforementioned bear flag formation.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for hisfree Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.