Here’s a trade idea on Groupon (GRPN).
Discussed in this article: Groupon Inc. ( $GRPN )
I want to look at Groupon ( NASDAQ:GRPN ), here’s why. The company announces earnings tomorrow after the close, Wednesday P.M. The stock is in a volatility squeeze and that really sets this up for a big move one-way or another.
Now, one thing we’ve got to note, I can’t help you get position before earnings. The stocks trading at a low volatility, which basically means nobody really has a good feeling one way or another which way the stocks going to go. That’s why nobody cares; at least they don’t care enough to take a big position. So it’s kind of like, place your bets, they’re all on the table, let’s see the next card.
But, if you’re looking at this technically, you’ve got a look at the 50-day moving average it’s trending higher. But more importantly, the last few times that the stock pushed down below the 50-day moving average or even to the 50-day moving average, what happened? Well, the uptrend was perpetuated. So it turns out to be a buy opportunity here, buy opportunity here, even these little tags at the 50-day moving average, are a buying opportunity.
Now, various retail stocks have been doing pretty well, they’ve been announcing good earnings. I can’t tell you whether Groupon ( NASDAQ:GRPN ) is going to be the next winner here; but I can tell you that support right now is at 8.15, that is right at the 50-day moving average. If the stock falls below that level then I would say that support is broken.
Does that mean I would run away from it? No, I would look at this as a potential buying opportunity. As soon as I see something like this, which is an open candlestick, it’s a reversal; it’s the first green candle after a big pullback, or something like this, which is a big gap down, and then a close higher than the open.
What I want to see is a close higher than the open; so if Groupon ( NASDAQ:GRPN ) does gap down tomorrow, watch and see how this thing trades during the day. Now, if it happens to gap down and you want to take it intraday, then go ahead and look at a 5-minute chart, 10-minute chart, and wait for the first open candle on that. Once you see the close higher than the open on that particular period, then that’s okay to buy.
Now, if on the other hand, Groupon ( NASDAQ:GRPN ) gaps, remember, this is in a volatility squeeze. The thing about these squeezes is, once they start expanding the stock can go farther and faster than you think it will. So don’t necessarily short the stock; if the company announces earnings that disappoint the market and the stock pulls back, just note that in the past that’s been a buying opportunity, so trade accordingly. Look to buy the dip, not reflexively, but wait for some signs that the stock has bottomed.
Just because I’m saying that is not the same as me saying, “So if the stock gaps up a lot and starts to run, go ahead and short that stock because it’s going to reverse.” Not necessarily, if the stock does start blowing out though do the same thing, look for support. If the stock does, in fact, find some support, in other words, the gap does not start immediately closing, then go ahead and buy some of the stock, take it for a ride and just use a trailing stop.
The lesson here is, use stops to define your risk. If you’re not using stops to define your risk you might as well be just flipping a coin, it’s the same difference.