Shares of online discount retailer Groupon (GRPN) jumped on Monday after positive comments from an analyst. GRPN stock has been looking much better as of late, after enduring a tough going earlier this year. Other new internet companies such as Facebook (FB) have seen similar recoveries. Monday’s rally left GRPN stock in a good position to move higher in coming weeks, as the technical picture has finally synchronized with at least marginally more positive news flow around the company.
Specifically, on Monday, an analyst at investment bank Piper Jaffray said that Groupon is seeing good growth in the number of deals (i.e. products and services) listed on the website. At present, the analyst noted, Groupon has more than 200,000 deals listed, which is significantly higher from the 140,000 listed deals late in the fourth quarter.
From an investor sentiment point of view, internet stocks that don’t have a great deal of approval from the analyst community are in desperate need of positive news-flow around their growth prospects.
Take Facebook for example, a company that many still question, or are trying to figure out the sustainability of the business model. Over the past few quarters, the company has put up respectable growth numbers and has been able to monetize on mobile advertising. As a result, FB stock has shown relative strength versus its peers and now looks well positioned to move back to its highs.
Groupon on the other hand still has much to prove, and it will likely take a good earnings report to convince more than the quick-money crowd to jump on board.
But Groupon isn’t scheduled for its next earnings report until August 7, which means that those investors waiting to see the proof in the pudding have some time left to wait. For the more active investor crowd however, GRPN stock now looks poised to make a move ahead of/into the earnings report that can be capitalized on using clearly defined risk parameters.
In the big picture, GRPN stock since its initial public offering in 2011, has mostly trade lower, but with the lows in May may have developed an important higher low versus its late 2012 lows.
On the daily chart however, the posture is beginning to look much more positive for GRPN stock. After the stock made its year-to -date-low in early May, it began to bounce and made a higher low in early June. All of this slowly began to push the stock against the $6.50 area, which ultimately led to a meaningful breakout over the last two days. The rally also broke the stock past its diagonal resistance line from the January top.
Active investors can use this upside momentum to play the stock against the recent bottoming formation. Barring any quick reversal of this, GRPN stock should have room into the $8.50 area in coming weeks/months.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.