Priceline (PCLN) has been up two consecutive days. Wanna know what to do now? (January 20, 2015)
I want to get to Priceline ( NASDAQ:PCLN ) and talk about this “Three Day Rule”. The Three Day Rule and it’s actually a Three Day Rule of thumb, it’s not hard and fast, but when reversal conditions happen typically they only last two days.
Here would be a great example, a big move up on one day, and then a big move up on the next day, and then no follow through after that. We see a big move down here and you could say, “Well what about this stuff?” Dude, those aren’t big moves. I’m talking about this, a big move down here, another move down here, like a gap down; the following day oops, lets go the other way.
Even here a big move up, a big move up; now ultimately this went higher but on the third day you just didn’t get that follow through. We did get follow over the next few days but what I’m saying is, typically these moves happen over two days.
Now why am I making a big deal out of this, what’s such a big deal about this? First of all, full disclosure, I’m short Priceline ( NASDAQ:PCLN ) and I’m not happy about this little move, how’s that? But here’s why I’m short Priceline ( NASDAQ:PCLN ), this stock has been in a really, really interesting, and kind of obvious topping pattern. The 40-week or 200-day moving average, right there, support. Now, right here, resistance.
So this is kind of a textbook, is this consolidation or is this a top? If it continued right up there for a while we’d have to say, “Maybe this is just consolidation, and we’re going to get higher prices from this stock.” Well guess what? That’s not what happened. Instead the stock is consolidating down here; it’s consolidating down here and its just kind of rolling over.
Also, I get the thesis, these guys have a lot of their business over in Europe, go check out the Euro, the last time I saw that it seemed like it was trending straight down to zero. So I understand why this stock is selling off and it could go lower. They announce earnings in about a month from now, February 18th to 23rd is when it’s estimated, and this is just on Yahoo Finance. So the stock has more room to pull back.
I’m wanting to take you here for a reason, because if you’re looking to buy this stock tomorrow just know that you’re betting against the trend, your betting against the rule of thumb, you’re betting against the prevailing trend of this stock.
Instead what I would suggest doing is watch the stock, look if it starts moving up go ahead and buy it, you know I didn’t corner the market on being right, I’m just remarking on this chart. If the stock keeps going up, great, hopefully it will because at one time or another the stock’s going to start rolling over. When it does start rolling over then you want to go ahead and short that stock, don’t buy it, and then you put a buy stop right above where the stock peaked.
Then if the stock does start moving around, going up again, you get stopped out with a small loss, right here. That’s how you want to be trading this stock. You can go ahead and buy it now if you want, and you may be right. However, the trend that I’m seeing really kind of tells me that you’re more likely to be wrong.
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