Priceline.com Inc. (NASDAQ:PCLN) and subsidiaries provide price-disclosed hotel reservation services with approximately 185,000 hotels worldwide and price-disclosed rental car reservation services in approximately 4,000 locations across the globe. The web-based service also offers retail airline tickets, hotel room reservations, and rental car services through its Name Your Own Price demand-collection system, as well as vacation packages, cruise trips and destination services, including parking, event tickets, ground transfers and tours in the United States.
Earlier this year, the company’s iconic spokesman — William Shatner a/k/a the “Negotiator” — met his end in a fiery crash. Killing off this persona was one way for the company to shift its focus from the Name-Your-Own-Price model to the more traditional approach.
PCLN has been on a tear lately, rallying nearly 50% just this year. While some of the move is due to an earnings beat and a ratchet-up in guidance, the rest of the move is predicated on a multiple expansion.
With PCLN now trading at 690, its 9-day RSI (relative strength index), which reached an extremely overbought level of 85 earlier this week, is finally curling down, albeit still hovering around the 75 level. The 18-day DPO (detrended price oscillator) reached over 100 yesterday, which is a level rarely seen and is also indicative of extremely overbought levels.
While the overall equity market this year has been moving steadily higher week after week, momentum stocks such as PCLN have been getting hyperbolic in comparison. At some point, I would expect a pullback in these momentum names.
With the stock recently showing the first sign of weakness in several weeks, and with both fundamentals and technicals stretched, I look for PCLN to head to 640 by May expiration.
Based on priceline.com’s current market price of $696.47 and using a target price of $640.00, a target date of May 18, 2012, and $10,000 of investment capital, option strategies to consider include buying a put spread, selling a call spread, buying a strangle, or using another options strategy that best fits your trading style and risk-return objectives.
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As of this writing, Tim Biggam does not own any shares mentioned here.