Get Away or Stay Away

 | Sep 25, 2013 | 9:00 AM EDT
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When it comes to investing in companies who have cornered the holiday vacation market, (PCLN) and TripAdvisor (TRIP) are the two names that immediately come to mind.

Both have drawn in investors who may now believe that these two companies intend on making new 52-weeks highs every several months into infinity. HomeAway, Inc. (AWAY), on the other hand, has gone relatively unnoticed.

HomeAway is an online marketplace for the vacation rental industry. Over the next five years, analysts are anticipating average annual earnings per share growth rate close to 30%. Unlike other companies in its sector, however, HomeAway has attracted very little attention.

HomeAway made its lackluster debut on the NASDAQ back in 2011. After several months of struggling, it fell from a high of $45.75 in September, 2011 to a low of $19.77 by the end of the year. Momentum shifted along the lows, creating an Inverse Head and Shoulders pattern on the monthly time frame that eventually brought HomeAway back into the low 30s. Since April, however, it has been trading in a range.

Many trading ranges will lead to a breakout once a security has established both two pivot highs and pivot lows within the channel itself. HomeAway has both. Initial highs were made heading into the second quarter with the first lows into early summer. A second high followed in July and the second low held mid-August. Over the past month HomeAway climbed back to the upper end of its trading range.

On the weekly and monthly time frames the current price development appears very favorable for the bulls. The slowdown into 2012 lows, the rounded lows, and the strong momentum higher into 2013 brought back many bulls, while the congestion left them hanging on. The current trading channel is forming in the 38.2%-50% retracement zone compared to the 2011 selloff, making it ideal for an upside breakout that could bring it back into $40.

Now for the bad news: Despite the larger time frames showing strong favor for further upside in the future, the shorter-term time frames are bearish.

As shares in HomeAway returned to the upper end of the weekly trading channel, momentum slowed once again. The bulls struggled to make higher highs and this led to a series of traps. Shares of HomeAway rounded off at those highs on the 60-minute time frame. Then, over the past three days, the stock fell and has congested along some initial daily support.

The inverse cup-with-handle that is developing intraday is ideal for shorts once the handle breaks. This setup has the potential to return the stock once again to the lower end of the weekly trading channel. Initial support will hit around $29.50, but there is room to move to $28.50 without too much of a struggle as long as the pace of the selloff coming out of this 60-minute congestion can match or outstrip the drop that began last Thursday.

What does this mean for position traders and investors? While the longer-term outlook is still favorable, the daily time frame indicates that the short-term struggle is not yet over. A new position at these levels risks being jostled around for months before we know whether the daily time frame also warms up to the idea of the bulls making a break for it. 

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