It has been a tough year and even more challenging couple weeks for Yelp (NYSE:YELP) investors. But cries for help have been heard on the price chart with a well-reviewed and supportive technical pattern is poised to deliver relief and profits for YELP stock bulls.
Let me explain.
YELP stock’s third quarter wasn’t pretty. But things got much uglier on the price chart in the fourth quarter roughly two weeks ago after the local-search, crowd-sourced service provider delivered unexpected, weaker-than-forecast revenues and reduced, below-view guidance for 2018.
Management was quick to take blame for the disappointing results. The company cited internal issues and its sales force as Yelp’s business model makes the transition from longer-term advertising contracts to non-term agreements following an exodus from smaller businesses disappointed with advertising on Yelp.
Nevertheless, with money in the bank, the potential to tap into a larger market, a sub $3 billion market cap and first-mover brand recognition, YELP stock may be worth checking out. Additionally, while YELP has rightfully been a critic of itself, there is some good news building on the company’s price chart worthy of a big thumbs up for bullish investors.
YELP Stock Weekly Chart
As with business conditions off the price chart, 2018 has turned into a transitional year for YELP stock. Following a move to all-time-highs within a fairly uniform uptrend of more than two years in length, shares abruptly plunged out of the pattern and beneath channel support.
The good news for those bulls inclined to look, is that there’s always a line somewhere of interest on the price chart. And as the provided weekly chart illustrates, I’ve found more than a few lines to support the bullish case for YELP stock right now.
What has caught my attention is a broadening or inverse triangle pattern, which indicates that YELP may be bottoming amid all the negativity. The formation is finding support with the pivot low wedged between the 50% and 62% retracement levels. Furthermore, with shares having formed a three-week long confirmation of the low and stochastics crossing and turning higher from an oversold condition, I’m giving YELP a thumbs up.
Trading YELP Stock
For investors agreeable with this obvious out-of-favor, contrarian play, YELP is worth buying today If a bit more technical confirmation is desired beyond what’s available on the weekly chart, buying shares above $34.74 can be considered. That’s the post-earnings high. Beyond that price level, there’s a large gap to $43.05 in need of filling.
With either long entry, the potential reward looks compelling versus the risk of buying YELP stock. I’d personally use either a three- or five-day low in shares as an initial stop-loss.
Alternatively and for like-minded options traders, a modified long Jan $36 / $40 / $42 call butterfly for up to 75 cents looks good. This spread effectively reduces and limits exposure to roughly 2% of owning YELP, while offering outsized returns if we’re correct and more praise for YELP stock is forthcoming from other investors.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.