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Weak

Remember Groupon?

Yesterday, Groupon (NASDAQ:GRPN) flashed a new red monthly Trade Triangle. I believe this is a significant event for this stock, as it has also broken a long-term nine month trend line and completed a major head and shoulders top.

1.) Green Monthly Trade Triangle at $5.50 on 1/14/13
2.) 9 month long-term trend line
3.) Head and shoulders top
4.) Head and shoulders neckline
5.) Target zone below $6.00
6.) Red Monthly Trade Triangle at $8.60 on 12/02/13
7.) Resistance at the 50 Line on the RSI Indicator

At one time, Groupon was the darling stock for investors. In fact, I think it was Google that wanted to buy Groupon for several billion dollars before they went public, but they refused to sell (BIG MISTAKE). I feel that the novelty of Groupon is wearing off with the public and that Groupon is killing its email list, which is or was its most valuable asset, by bombarding users every day with offers. On the other side of the coin, providers for Groupon are tiring of providing services, as more and more service providers are finding that they are just giving away their services and getting very little back in return.

Yesterday, Goldman Sachs also raised the red flag on Groupon (NASDAQ:GRPN). According to Goldman Sachs, Groupon was listed as no longer deserving of a premium valuation against peers, and the firm cut the objective price target to $11 from $12 for the next 12 months. The valuation premium, again according to Goldman Sachs, is no longer being deserved due to decelerating revenue growth.

From the completion of the head and shoulders top and the break of the long-term trend line, we could see Groupon start to slowly erode down to the $6 level or lower. Not everyone likes or feels comfortable shorting stocks, but Groupon may offer an opportunity to go short should we see a bounce back to the $9 or $10 level.

As with any investment or trade always use money management stops to protect capital.

I would like to know what you think, so please feel free to add your comments below.

Every success in your trading,

Adam Hewison
President, INO.com
Co-Creator, MarketClub

Comments

  1. James R. Estey Jr. says:

    You are the technical guru, but from what I read, the IPO from GRPN at $20 per share in Nov. 2011 was based on "improper refund accounting" used to boost revenue and reduce operating losses. Sure, Andrew Mason is gone, but the class action lawsuit against GRPN, Mason, Credit Suisse, Goldman Sachs, and Morgan Stanley is NOT as U.S. Federal District Court Judge in Chicago, IL, named Charles Norgle denied the Defendant's Motion to Dismiss in September 2013. From what I have read, it appears to me that GRPN and those involved with that IPO are LIABLE! GRPN is probably a good SHORT, but I really try to stay away from Shorting stocks that already have a high Short Interest (Greater than 5%), so I would just avoid it altogether.

  2. MarcoP says:

    Adam, I totally agree. I think the Groupon concept is far to easy to duplicate (no moat) and having spoken to several of them in my town, businesses that use the service are always regretful of the process. There are coupon/discount companies opening up daily. I'm sure they are regretting their holdout from the Google offer (and Google is probably asking themselves...what the heck were we thinking?).
    I have not done so yet, but if it opens lowers tomorrow, I'm picking up some puts.
    Thanks for the chart. Always enlightening!

    • Adam Hewison says:

      MarcoP,

      I like your thinking. I would be interested to see if vendors/service provider have had a positive Groupon experience.

      Thanks for sharing your thoughts with everyone.

      Cheers,

      Adam Hewison
      President, INO.com
      Co-Founder of MarketClub.com

  3. Joannes says:

    In this case I don´t trust the ¨head and schoulder¨ because their story is peculiar. And on top of that, it has had though headwind the last 2 months from the analists because they feel tricked by the management in 2013. In total with all the changes made this year to Pull and Mobile I believe in the company, just today, they announced realy good sales during the Holyday weekend. For me the first sign that the changes work and for 2014 I go for the last part to the initial IPO price.

    • Adam Hewison says:

      Joannes,

      Thanks for contributing to the conversation, much appreciated. It will be interesting to see what happens.

      Every success,

      Adam Hewison
      President, INO.com
      Co-Founder of MarketClub.com

  4. Edmund says:

    I completely disagree with you. Your analysis is too short term to be drawing conclusions on Head and Shoulders Tops.
    The fundamentals are strong and the Sector is Ripe for Growth. The Stock multiple will benefit from this.
    The Company management is Excellent and when this Stock Breaks out, the Shorts will be Crushed.
    There is more upside than Downside.

    • Adam Hewison says:

      Edmund.

      Thanks for contributing to the conversation, much appreciated. I respect your opinion and I totally respect our Trade Triangle technology. It will be interesting to see how things turn out.

      All the best,

      Adam Hewison
      President, INO.com
      Co-Founder of MarketClub.com

  5. Eric says:

    gr8 chart adam - well worth keeping an eye on!!

  6. Adil says:

    The probability of a short is better if it has a daily close below the 200 day moving average.

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