Online review site Yelp (YELP) has had a manic year. It ascended at the start of 2014 to reach new highs in March, but has since slid some 85% in just two months’ time – despite giving better-than-expected EPS and positive guidance for the year ahead in its latest quarterly report.
While management was enthusiastic about the results, YELP’s chart shows that traders were less than excited and have been selling the stock lower and lower. But the chart also shows that those sellers may have bailed too early.
At the May 19 close, Profit Scanner powered by Recognia indicated a Bullish Continuation Wedge pattern appeared on YELP’s chart. As the name suggests, this intermediate-term pattern puts the stock in an upward trajectory, with the Continuation Wedge expected to catapult YELP’s share price to $103.00 to $113.00 in approximately 51 trading days.
This pattern emerged on strong volume of more than 5.5 million shares traded. If YELP were to hit the conservative target of $103.00 in the expected timeframe, from Monday’s close at $57.31, it would mean a 79% return in about three months’ time for traders.
Incidentally, a move to $103.00 would constitute a new high for YELP.
Let’s look at the Bullish Continuation Wedge in a bit more detail. It tells traders that after a stock experiences a temporary interruption – like the one YELP has endured from March until present – the prior uptrend is on course to continue.
In simplest terms, a Bullish Continuation Wedge denotes a temporary pause to an uptrend. It takes the shape of two converging trend lines, both of which are slanted downward counter to the trend. In this time, bearish traders attempt to defeat bullish traders but the bulls triumph in the end as the stock breaks above the upper trend line, signaling that the prior uptrend will continue.
The support and resistance picture for YELP is intriguing. Support lies at $55.10 but there is no major resistance until the $90.00 level. This suggest that traders who rely on the chart pattern can enter long positions and ride a move up to that $90.00 area but should consider taking at least partial profits when it hits that mark. Keep in mind that Yelp’s all-time high is $101.75.
Profit Scanner places a tight stop-loss level at a close below $49.90. While Profit Scanner does not identity options trading opportunities, a look at YELP’s option chain shows surprisingly light open interest. The YELP Aug 62.50 Calls are worth a look, as they closed lower on a positive day for YELP, which means traders could be getting a discount but any options trades should be initiated with speculative money that you can afford to lose.
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