Wednesday, May 28, 2014

The Priceline Group Inc. ($PCLN) Stock Analysis & Trade Ideas

While I have been posting most of my thoughts on my Stocktwits page, it is time to start using my site again. It is a win-win situation! I keep myself accountable to my analysis, and also share my ideas.

My first post in a long time will be on a stock that I am most familiar with, The Priceline Group Inc. ($PCLN). I have posted extensively in the past couple weeks on the volatility in this stock and think that buying Straddles and/or Strangles are the best way to play it. Let’s look at a couple charts below:

Analysis 1: Support, Resistance, Trendlines:

 Daily Chart (September 2013 - May 2014)

1. $1,100-$1,110 is huge support (6 consolidated areas, 5 as support)

2. $1,200 is major resistance (9 consolidated areas, 8 as resistance)

3. The $1,270 area is both support and resistance(4 consolidated areas, 2 as resistance)

4. From March 3rd 2014 to May 12th, Priceline was in a patterned downtrend

Analysis 2: Point Moves

Since September 2013, 8 of the top 10 price moves have come crossing up or down through $1,200.

When $PCLN daily movement touched the $1,265-$1,275 level, within 5 trading days the stock price was +/- > 5% from that day’s close price over 50% of the time.

Lets look at the $1,200 level (+/- 2-3$). Similar to the $1,265-$1,275 level, this resistance area returns at least a 4.8% move in either direction within 5 days 60% of the time. Once 5 trading days have passed from Friday (5/23) and Monday (5/27), this number can jump to 66%.

Analysis 3: Options (Premiums etc.)

This is a lot tougher to package in a pretty graphic, but the Strangle (Different Strike, Same Expiration) is my favorite play for $PCLN, especially in resistance/support areas. $PCLN is a bit of an unusual beast, slightly due to how high the price is, but mostly due to the historical volatility. Even now, 2 days before the May 30 Strikes expire, options are still pricing in a ~21 point move from today's $1,270 close.

For our analysis, we only care about options expiring at least 5 trading days after the initial resistance area move. Using the June 6 Options Table above, options are pricing in a 46 point move, or a 3.6% move from the current point. Referencing our $1,265-$1,275 Analysis above, 7 out of the 9 times this area was hit, the stock price moved more than 3.6%.

Disclosure: Technical Analysis and Analytics have it's flaws. They both look at patterns that happen more often than not, but that still means it is sometimes wrong. When making investment decisions, you should always use your own research and use due diligence prior to making that investment decision.