Groupon Inc: GRPN Stock Flirts With Another Breakout

Groupon Inc (NASDAQ:GRPN) shares are higher by nearly 65% for the year-to-date. The gains were largely the result of two big buying waves and constructive consolidation phases in between. Groupon is scheduled to report its next batch of earnings next week, Wednesday, Oct. 26. Considering Groupon stock’s constructive state, another post-earnings rally could be in the cards.

Beat the Bell: Groupon Inc NASDAQ:GRPN)Before looking at GRPN’s charts, let me be clear: I’m no proponent of “gambling” with stocks or options through earnings reports. You shouldn’t guess or hope for a specific stock reaction on the back of something as complicated as an earnings report.

A better way to “play earnings,” so to speak, is to wait for them to come out, then give the stock in question time to react to the news. An old Wall Street adage is that “the reaction to the news is more important than the news itself.”

When I last discussed shares of Groupon on June 22, I pointed to a series of unfilled price gaps in its chart and said that particularly the price gaps above the price level stand a good chance of being filled. A few weeks later, GRPN stock had filled both upside price gaps as it rallied about 40%.

Groupon Stock Charts

GRPN stock initially rallied sharply off the February lows along with the broader market’s V-shaped recovery. From an idiosyncratic perspective, though, Groupon shares got a strong boost after reporting earnings Feb. 11.

This rally was wave one, and pushed the stock back to the red dotted diagonal resistance line on the chart. After a few months of consolidation, GRPN staged another meaningful rally in July and early August following the July earnings report. This rally broke the stock past the aforementioned technical line of resistance. Since then, the stock has spent the majority of its time consolidating in what may be yet another setup that bulls can sink their teeth into.

Groupon stock chart daily (GRPN)
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Looking at the daily chart of GRPN stock, we see that each of the three earnings dates (thus far) have caused major gaps. The February earnings report led to a blast higher, the April earnings report gapped the stock lower and the July earnings report led to another big up-gap and rally.

Looking at the chart, we also see that most of the gains in the stock for the year-to-date took place in a matter of a few weeks while the rest of the time the stock was in consolidation mode.

Groupon stock chart daily view
Click to Enlarge

The latest consolidation phase that Groupon stock has now been in since early August looks to be coming to a head just in time for next week’s earnings report. While frisky traders will look to position ahead of another up or down gap following the earnings report, I would look to buy the stock upon a gap and hold above $5.40 for a move toward roughly the $6.50 area.

Personally, I am not looking to participate in any downside (i.e., shorting the stock) upon a down-gap after earnings next week.

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