So You Wanted A Pullback to Buy Priceline…..
- Posted by Greg Harmon
- on October 8th, 2013
….you got it today. In spades as they say. Are you ready to pull the trigger? Or are you scared now that it has shown it can move over $50 in one day? Lets look at the price action for clues. The chart below shows that a couple of key levels were breached Tuesday. The first was the 20 day Simple Moving Average (SMA). An initial break is not necessarily a horrible thing. It has broke the 20 day SMA 4 times before on this rise higher from the beginning of May. Each has been a buying opportunity shortly afterward. The second was a break of the rising trend support since the May move higher. This is worth pausing about. It did break this tend once before, but this is the first close under it. It is not a reason to short the stock in itself though.
The breach of the 990 level, and then retracement to close above it is more important This is the level that price peaked at in 1999. Notice that it stalled there twice before breaking higher. it could be that this is just a back test of that breakout before another move higher. All of the SMA’s, the 50 day, 100 day and 200 day are rising and below this price. That shows a bullish trend right? The price derivative indicators are not giving a clear signal. Good thing they are only used to support or reject the trade thesis at their current levels. The Relative Strength Index (RSI) is pulling back and running lower. But the current level is right where it has turned around the last 4 times it has been there. The MACD is looking ready to cross down and is falling. This is a bearish view but needs to follow through. It is well above the bottom Bollinger band. This is where it has stopped falling and reversed several times in the trend higher. The volume Tuesday was large, at over twice the 90 day average daily volume. That is expected on a big down day. Not capitulation size volume. But big volume that could not close the stock under that previous breakout level.
The bottom line is that you must respect the move lower Tuesday and that it looks like it could be a good buying opportunity. Confusing right? Here is how you might deal with it. Sell Weekly puts on the 950 Strike, at that lower Bollinger band, for a third of a position. You can collect almost $2 in premium for a 3 day trade, and your risk is that you own the stock at 948 on Friday. Do you think if it closes under 950 on Friday that it might bounce a little next week after a 13% fall? Go out a week further to the October Expiration and that 950 Put will get you $5. Is the reward for the risk good enough for your account? I am not sure that it is. Being a technical trader I will be watching for signs of a reversal before re-entering. A move back over 1020 would be a start. What is your though process around Priceline, $PCLN?
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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