Let’s start with my summary statement — Nielsen Holdings (NYSE:NLSN) stock has been falling for years but the trend could flip soon. There is technical tension building that could cause a rally in the near term. This is not the same as saying buy it here, though.
I am not a fan of catching falling knives unless there is a clear vision of why the stock is falling and of how the company is addressing the problems that are causing the slippage. Not all stocks that are sliding are catchable.
Today I examine the opportunity, if there is one, in NLSN stock.
Looking at NLSN Stock
While the S&P 500 is near its all-time highs, NLSN stock is stuck near its all-time lows. Clearly there is something wrong that Wall Street, as bullish as it is, wants nothing to do with it.
Before Netflix (NASDAQ:NFLX) completely changed the way the world consumes media, NLSN stock’s world was easy to understand. People watched set-top boxes and if you monitored those, you get the idea of what are the viewer habits.
Now we all want to consume our media by streaming it, and that is a world has hundreds of ways of doing it. This number is also growing. But perhaps more importantly, unless Nielson finds a way to offer different value, measuring streaming consumption is easier now for the companies that provide it that perhaps they don’t need outside help to understand their clients. Meaning NLSN services are almost obsolete now.
When I try to catch stocks that cannot find a bottom, I look for value. But here, after all these years in existence, NLSN stock still loses money. This means that there is literally no tangible value to find. So I would need to do it on faith and that is a leap I can’t take.
Yes, I am not a fan of buying Nielsen stock here unless I know something that the consensus doesn’t. So what if I already own the shares, is it time to get out?
That depends on the reason investors bought the stock. Usually I bail on my position if the reason that bought is no longer there or if I see an imminent threat to price regardless of my conviction in my thesis.
So that leaves the technical evaluation of NLSN stock to be the arbiter.
Nielson has been trading in a three-year-long descending channel of prices. This means that it has been setting lower highs and lower lows relentlessly since 2016. The saving grace here is that the pattern may be changing.
Since last July, NLSN, while it continued to set lower highs, it stopped making lower lows. In fact there is a mini trend of three higher lows. So we now have two separate and opposite trend lines. When they meet, there will be a lot of energy built into the stock. This tight situation will then need to resolve itself in a big move.
The problem is that the direction of said move is unknown here … but since we are at all-time lows, it is perhaps more likely that not that it will bounce and start a recover rally.
This, to me, is still more guessing than investing so it’s definitely not for me. But if I were already holding the stock this long it might not be the best place to sell it before seeing the results of this descending wedge breakout.
It is important to note that the shorter-term price action has been violent of late because of headlines. In late March, the stock cratered because of a Credit Suisse downgrade. But NLSN has since closed the gap from that on rumors of buyouts.
So clearly there is more insider homework necessary here before making better fundamental reasons to own NLSN shares. Meanwhile the technical trade is brewing and with the added support of a buyout rumor increases the odds of the descending wedge breaking out rather than down.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.