While Yelp (YELP) and Pandora Media (P) run different services, both are part of a “new” wave of Internet companies that has rallied hard since July along with Facebook (FB) after it reported its last earnings.
From a trading point of view, one can look at these stocks as a group, playing off each other — at least for the time being. You see, this game works until it doesn’t, which is to say that should any of those companies see a slip in its business model, it would quickly fall out of favor with investors and stop trading in sync with the wolfpack.
The thing with momentum stocks — such as Yelp and Pandora — is that a) they can continue their ascents beyond bears’ wildest imaginations, and b) when they do consolidate, it’s often in a quick and jerky fashion, which often shakes out many of the weak hands in the process.
On the daily chart of Pandora stock, you can see that while P shares have a tendency to gap up or down at the open, when the stock breaks past resistance lines, it has a tendency to accelerate higher. Note the various resistance lines that I drew on Pandora’s chart.
Much like we will see on the chart of Yelp below, Pandora reacts well to its 21-day simple moving average (yellow line). Simply put, Pandora stock is not yet showing any big warning signs of reversing lower, and those looking to trade the stock on the long side could hop on the stock for trades on new breakouts.
As I suggested in the title, Yelp’s chart looks similar to Pandora’s:
YELP stock accelerates on breakouts (black lines) and respects its 21-day moving average. Traders can look to buy breakouts, but reduce longs or even short the stock on a break below the 21-day moving average.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.