Local business review website Yelp (NYSE:YELP) has seen tough going as a publicly traded stock since its initial public offering back in March 2012. The stock is up 26% from its IPO price of $15, but like other social networking companies, Yelp Inc has endured extremely volatile trading in 2012. To some extent that is not to be unexpected as these new and unproven business models need the test of time to show investors they are here to stay for the long-run.
While I tend to stay away from newly listed companies like Facebook (NASDAQ:FB) or Trulia (NYSE:TRLA) as far as trading goes, Yelp may just offer an exception. Because of the lack of significant-enough trading history, on average technical analysis doesn’t work well for me on newly listed stocks until more trading history has developed. In its short nine month trading history however, Yelp has already remarkably displayed one key characteristic that I pay much attention to; it reacts extremely well to candlestick signals.
On this chart for example, see the very clear candlesticks with long tails, all of which formed at the top of the very wide trading range in which the stock has been trading since its IPO.
If we look a little more close up, we note that the quick 26% rally off the November 15th bottom came to an abrupt halt on Thursday November 29th, when the stock developed an outside day candle which engulfed the previous two trading days open to close range – a bearish sign. The following day, Friday
November 30th the stock fell another 2.80% in good follow-through and confirmation selling – something I like to see to confirm an outside day candle such as the one from last Thursday.
At the same time of the just-mentioned candlesticks the stock had also moved into overbought territory on its stochastics oscillator and the stock had rallied into the 38.20% Fibonacci retracement level of the most recent correction.
All of the above points came together at the same time to create a nice little confluence zone of resistance.
Recommendation: Based on the above analysis I see a short-side try on this stock, with a target near the $17 mark and a stop at the Thursday, November 29th high of $20.60 as a nice risk/reward setup.
As a little word of caution, please note that at current levels the stock does trade near the bottom end of its trading range since March and any break above last Thursday’s highs could accelerate the stock higher in a mean-reversion move.