Groupon (GRPN) — time to buy…or sell?
Discussed in this article: Groupon Inc. ( $GRPN )
Let’s take a look at Groupon ( NASDAQ:GRPN ). There’s a lot to be gleaned from this chart: One, your first loss is your best loss. That’s an old axiom on Wall Street, a lot of people don’t really understand what that means because they think, is there such a thing as a best loss? I’d rather avoid the first loss. This is what that means, the company announced earnings and the stock gapped down and kept trading. Now newer traders, you’re going to buy this stock, you look at this, $10.00 is support, you look at the 200-day moving average, that’s a key level too, 200-day moving average is at 9.72, so you’re going to say, “You know what? I know, I’m going to buy the stock now before earnings, but I’m going to set my stop at like 9.70 or so, yeah, that’s the ticket.”
So what happens, you set your stop at 9.70, well the stock gaps down to below $9.00, you don’t get 9.70. If you just set a stop, like basically when the stock it’s below 9.70 it’s a market order sell, you’re going to sell right here. Now frankly, you’re going to be glad you did, but if you set a limit you’re going to be glad you did because the stock kept going down another dollar. But if you set a limit order, if the stock hits 9.70 then sell at 9.70, well then your stop doesn’t get triggered here, you’re still holding the stock, it’s just like in a limit order, you place a limit order, you don’t get filled, you don’t get the stock, you don’t sell it, you don’t buy it. So you set your stop at 9.70, the stock opens up at 9.00, you’re now 70 cents, which is a big percentage, below where you’re stop level is, you’re still holding the stock and now what are you doing, now your trading the hope strategy, hope doesn’t work.
So should you buy the stock here at 8.00? You know I had a buddy of mine call me up on Friday and say, “Hey, what do you think about Groupon ( NASDAQ:GRPN ), what do you think?” And I said “No, I don’t think it’s at great point where you want to be shorting this stock.” And he said, “Short the stock, I’m talking about going long. Should I buy it on this dip?” I would say no, that’s what I told him. Let’s zoom into say an hourly chart and see. Okay, big volume first thing as you would imagine, all the retail traders rushing to sell, all the floor traders, and all the professional money managers rushing to sell too. So whose buying? Not that many folks, which is why the stock continues to go down. So the aggressiveness of sellers is much higher than the aggressiveness of buyers. Well, so far again, we’re just looking at an hourly chart, so far, that aggressiveness is still working on the behalf of the seller’s, because look at the volume, again, this is an hour chart, volume of selling actually picked up during the last hour of the day.
So if you are buying this right now, by the way it’s okay to buy it, you just need to define your risk, you’re saying, “Well I think the stock’s done going down at $8.00. Look, that’s the max that it went down, $8.00, I think that’s a great support level.” Fine, buy the stock, buy it at 8.03, but know this: you’re not buying it on any kind of a buy signal, the stock is not acting in such a way that you go, “Here’s my setup, I’m in.” It’s not doing that, what you’re saying is, “I just think the stock’s done going down enough, and $8.00 is a time when buying pressures going to overcome selling pressure and we’re going to get a bounce.” Great! You can make that trade, you can set your stop at like 7.95, and you’re risking 8 cents. If your stop is hit you’re basically out at flat, you haven’t lost any money. This is the type of trade that those who like to pick bottoms, this is the type of trade that you can do, if you are a bottom picker, if you like to buy this stuff; because you’re in and you have very little risk on the trade, so if you’re wrong you’re out, basically almost for a flat trade.
Now me, I’ve tried that style of trading and I’m just not very good at it, I’ll admit it, I’m just not very good at it, I don’t like to make these trades without a buy signal. Even on the 15-minute chart, it looks like the stocks trading maybe kind of sideways, but we’ve still got pretty high volume, so I just don’t want to mess around with this yet, I want to wait for an upside move to go long. Even then I’m telling you, I wouldn’t go long, what I would do is, I’m looking for a partial retracement, the stocks hit this and this. If it does indeed bounce, let’s just go halfway from $10.00, which would be about this level here, from $10.00 down to $8.00, I’d look for a retracement to about $9.00. And then you know what I would want to do? I would really be looking to short this stock if it gets up this high, but right now I just don’t see a trade to the long side, but I would not be shorting a stock that’s down 22 percent in a day.
So right now the action on Groupon ( NASDAQ:GRPN ) is to watch it and wait for your entry. Right now I definitely don’t see one to the long side, though if I had to choose, if I had to choose between buying or selling or shorting, no question about it I’d be buying, no question, I would be buying this stock, and I would be buying this stock based on this analysis that I just mentioned. I would be looking to buy it now and put a stop just a little bit below $8.00, like I said, 7.95, if I was buying. As it is, I’m not buying, I’m just watching, I think there’s some money to be made on this stock, I just don’t quite see it yet, I see it just as a coin toss.