Since reaching a top at $31.14 on its first day of trading, Groupon (GRPN) has traded lower. Currently the stock is in a position to post a secondary lower top at $25.15.
When GRPN turned its main trend turned down in late November after it crossed the swing bottom at $22.76, the market accelerated to the downside. When it reached the all-time low at $14.95, it was also oversold on the short-term charts. In addition, it bottomed almost simultaneously with the S&P 500 Index.
The subsequent rally was impressive, but it was basically just a greater than normal retracement of the sell-off from $26.90 to $14.85. From the top at $31.14 to the bottom at $14.85, GRPN formed a retracement zone at $22.99 to $24.92. The recent surge to $25.15 took the market slightly beyond the Fibonacci retracement, but the stock has subsequently broken back below this level as well as the 50 percent level at $24.92. This is the first sign of impending weakness.
In addition to the decline below the retracement zone, GRPN also formed a closing price reversal top at $25.15. This pattern typically indicates a 2 to 3 day break of equal to at least 50 percent of the last rally. The key is the confirmation and this will occur when $21.50 is penetrated. If this takes place then look for a possible break to 50 percent to 61.8 percent of the rally from $14.85 to $25.15 or $20.00 to $18.98 respectively.
Another sign of weakness is the breaking of the uptrending Gann angle at $22.85 today. As long as GRPN remains on the bearish side of this angle, the market is likely to feel downside pressure. The Rule of All Angles suggests that when one angle is broken, the market moves to the next angle. In this case, the market may break to the next uptrending Gann angle at $18.85 on Tuesday.
The combination of the retracement level and the uptrending Gann angle creates a potential support cluster over the next 1 to 2 days at $18.98 to $18.85. There may be a technical bounce in this cluster because short-traders may decide to take profits or bottom-pickers may choose to trade counter-trend. Remember that this scenario is not likely to take place until the closing price reversal top is confirmed.
Contact Market Analyst James A. Hyerczyk at patternpricetime.com.
