by Serge Berger | January 6, 2014 7:59 am
Groupon (GRPN), the famed operator of discount offers for goods and services, last Friday announced that rival LivingSocial plans on selling its 2% stake, or around 13.8 million shares in the company. That prompted an upgrade of GRPN stock by analysts at Northland Capital Markets, as well as an updated $15 price target. (Groupon is one of Northland’s top stock picks for 2014.)
LivingSocial ended up with 2% ownership of GRPN as a result of Groupon’s purchase of Ticket Monster in November, which was valued at $260 million in cash and stock. Throughout the negotiations, LivingSocial said it would sell its stake in Groupon, which is exactly what they are now doing that the deal closed last week. In an SEC filing, Groupon said it will not receive any proceeds from the planned sale of GRPN stock by LivingSocial.
On the back of the news, GRPN stock initially sold off on Friday, before turning around and closing the day higher by 1.94%.
From a 20-month perspective on the below chart, Friday’s rally in GRPN stock pushed it back up toward a resistance area that spans from roughly $12.20-$12.80. Ever since November 2013 — when Groupon shares developed an important low (along with an important higher low in the broader U.S. stock market) — GRPN stock has been bought on every dip, which is what we once again saw in the last week of 2013.
The most important dip that investors bought in GRPN took place on Dec. 2, when the stock touched its 200-day simple moving average (red line), which led to the stock developing a tight base and rocketing higher. In December, I discussed this being one of my “rocket launch” setups that could lead Groupon stock to move back to near the previous year-to-date highs from September.
On the closer-up daily chart, GRPN stock now looks to be trading in another tight pattern that has good upside momentum on its side.
My three-step approach to finding winning trade setups includes a laser focus on developments of candlestick patterns on the charts. Because candlesticks tell me what investor emotions are at any given point, I can detect high-probability trade setups with much greater accuracy.
The Dec. 2 capitulation in the stock was quickly bought after leaving behind a so-called hammer candle on the daily chart. More recently, GRPN stock has been consolidating its early/mid-December rally, and with Friday’s push higher is once again flirting with the upper end of this consolidation area.
From here, a break past Friday’s highs around $12.20 opens up GRPN stock to move toward $13.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
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