Online travel site Priceline (PCLN) announced early last Friday that it is buying restaurant booking company OpenTable (OPEN). The stock price of OpenTable rallied almost 50% on the news (the $2.6 billion buyout came at a 46% premium) while PCLN stock slumped 3%.
That’s a fairly normal reaction to M&A news (share prices fall for the acquirer, while the acquisition target’s stock rallies). However, in the case of PCLN stock, the selling also is occurring at a technically critical spot, thus leaving shares vulnerable to a more serious decline in the weeks/months ahead.
Priceline’s announcement was for an all-cash, $103-per-share buyout of OpenTable, which allows Priceline to gain significant market share in the restaurant marketing service.
Through a psychological and technical lens, I can’t help but wonder if this acquisition has marked a medium-term resistance area for Priceline stock. It’s not unusual for a company’s share price to top just upon completing a major acquisition. From a fundamental perspective, this makes sense if we consider the initial (and potential) overhead and integration costs, not to mention the time that has to be spent to mold the two companies together.
PCLN Stock Charts
For PCLN stock, the rise off the important higher low in 2010 (vs. Priceline’s late 2008 lows) has been significant in percentage terms, to say the least.
From a technical perspective on the below weekly logarithmic chart, Priceline stock also continues to hold its support line dating back to those 2010 lows, which … well, simply put, it’s supportive until it isn’t. Over the past two weeks, PCLN has dropped about 7%, and in the process, that has brought Priceline stock right back to this multiyear support line.
On the daily chart, PCLN stock has since last November developed a bearish pattern called a head-and-shoulders formation, which is starting to look like a medium-term topping pattern for shares. Note how Priceline stock rallied to a new all-time higher and past resistance in February, only to quickly give those gains up again. Another rally attempt in late May then took PCLN stock to a lower high vs. the late February highs, from where Priceline stock again began to slip.
Active traders and investors can use last Thursday’s intraday highs near $1,265 as a stop level to lean against, as Priceline now looks increasingly likely to move back toward lateral support near the $1,000 area.
Given the high nominal stock price of PCLN stock, buying a slightly in-the-money put with at least a couple months until expiration is a good alternative to shorting the stock.
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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.