Big pullback in Priceline (PCLN). Is the price right to go long? (December 10, 2012)
PCLN
Good evening Dan Fitzpatrick here at Stock Market Mentor and Option Market Mentor; by the way we’ve got a one-hour Q&A tonight for Option Market members, so if you’re bored listening to this video or watching this video and you’re an OMM member don’t forget about that, you can get the link at the website. Okay, look, Priceline ( $PCLN Priceline.com Inc ), this stock today took a, I’ll say it, it took a dump. Five percent down on an analyst’s downgrade from buy to hold, and when you get a rating of hold, that’s street talk for sell this pig in a real hurry. And so the stock fell down, you can see the price here, basically $6.25 here. The reason was that they probably faced tougher competition from Expedia ( $EXPE Expedia Inc ). Okay, that’s fine Expedia’s ( $EXPE Expedia Inc ) been around for awhile. And then the dreaded Facebook ( $FB Facebook Inc ) thing, which is, travelers are using mobile devices more often to buy hotels and airline tickets and that was one of the things that kind of put the kibosh on Facebook ( $FB Facebook Inc ), when analysts said, you know mobile devices aren’t really good. Totally different reason but basically it’s the mobile device bugaboo. So what do we need to do with Priceline ( $PCLN Priceline.com Inc ) here? I think this is a good opportunity to buy and I’ll tell you exactly why. Because it’s close to support, we like to buy at a level where we’re close to the, oops, I’m wrong level. In other words the stock, in this case since we’re buying, the stock doesn’t have to move that much further down in order for us to know that we were wrong to buy; then we go ahead and sell the stock for a small loss. So here, you can see what happened, stock gapped up on earnings, great, came back and tested the 50-day moving average and that’s where the stock found support, rallied up to here, and guess where we’re back to? The 50-day moving average. So after this kind of move lower, and look at the volume, really big volume, like twice the average volume on this move today. You can buy this stock; I wouldn’t put a stop just below the intraday low of $623.10, because the 50-day moving average is just a little below there at $620.00. So instead, if you’re buying this stock and just move the decimal point over one to the left, it’s a $62.60 stock; the 50-day moving average is actually $62.05, so there’s not that much of a difference in price. You can buy this stock right now and put your stop just a little bit before that level. Now I know what you’re thinking, you’re thinking, yes Dan, but what about this low here? That’s a little below that, and so, why don’t you put the stop down here? That’s fine, you could do that, but then we can say, what about the lower Bollinger Band? Because if the stock dropped clear down to the lower Bollinger Band wouldn’t it then bounce? Okay, sure, then we can put the stop down here. The point is, you can put your stop wherever you want, I can make a good case for all three of these, but I like this high one, you know why? Because I lose the least amount of money. If I get stopped out and then Priceline ( $PCLN Priceline.com Inc ) bounces again, guess what? It’s not like I got married, I got a divorce and I don’t want to marry the same person again. I can get remarried here; I can buy this stock and let it move higher along with me. That will make up for my losses that I took on getting stopped out prematurely, but the bottom line is, you want to have a stop on this stock because a sell rating is serious, it’s like five percent serious. Will it be six or seven percent serious? We’ll figure that out tomorrow. Okay, that’s it for this video. Members, get over to the Strategy Session. Free Chart