Considering Priceline's Short Side

 | Oct 03, 2012 | 11:30 AM EDT  | Comments
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Stock quotes in this article:

pcln

I have started looking at Priceline (PCLN) on the short side with options. I typically look at vertical spreads, so the risk is not outrageous. If you look at the daily chart, I can make a case for the sell side in this stock, now that the 60-minute chart has started to show reversal indications in the last couple of weeks. Let's start by looking at the daily chart and consider the reasoning.

You can see that I have labeled one prior rally swing which lasted $94.31 and the most recent one which lasted $95.88, which is very similar in price. This similarity in swings is within the context of a larger downtrend since the April 30 high was made. Initially, there were not any strong reversal indications that suggested we look at the short side, but now there are. Let's look at the 60-minute chart of this stock and I'll explain what I saw.

Priceline (PCLN) -– Daily
Source: Dynamic Trader

Once this resistance was being tested on the daily chart, I wanted to see a break or violation of the "symmetry" of the rally seen since the Aug. 9 low was made. For this, I looked at the prior largest declines within the uptrend. The two that stood out were $20.04 and $18.39. When it declined, $21.15 it looked like it might be ready to break down but since it really did not decline below the 100% projections by a decent margin, it was a bit premature to place any major bets on the short side. However, when it finally declined $31.98 from the recent highs, that was a strong indication that at least a deeper downside correction was due. At that time, I set up the next pullback (in the $632-$638 area) for a short entry. Finally, today it made the first downside target at the 612.81 area. This was a $22.47 decline from the pullback high.

I have walked you through this last setup so you have a better understanding of how you can get involved in the next one. Since the pattern on the 60-minute chart is still bearish, we can set it up again on the short side. Let's look at a new 60-minute chart to get an idea of how you can play this.

Priceline (PCLN) -- 60-minute
Source: Dynamic Trader

On this second 60-minute chart of PCLN, I have labeled the prior rally swings seen on this chart since mid-September. They have been anywhere from $11.08 to $20.85. From any low, I will project 100% of those prior rally swings and also look for some overlapping retracements and/or price extensions. I will look at those areas for a possible sell entry if there is a trigger similar to the one seen after the Sept. 27 high was made.

Right now, the zone comes in at the $622.09-$632.29 area, though these levels will have to be recalculated if a new low is made. I will back off the sell side however if the $633.91 swing high is taken out instead. Since it is not near a sell zone just yet, I will post an updated chart in Columnist Conversation if I see this next opportunity ready to unfold. The first target for a decline would end up being at least somewhere below the $611.44 area. The actual targets will be defined once a key high is made into the zone and then it starts to reverse. I will keep an eye on this one in the coming sessions and keep you posted.

Priceline (PCLN) -- 60-minute
Source: Dynamic Trader

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