A Price That Could Be on the Line

 | Nov 16, 2012 | 12:30 PM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

pcln

There's been hearing increasing chatter lately that, if you're shorting stocks now, you're late to the game. That does hold true in some cases. For instance, I'm not interested in shorting Apple (AAPL) now after a 25% decline. However, plenty of compelling short setups remain that could offer more downside in coming weeks.

Sure, the market is oversold and will probably bounce at some point between now and the end of the year, but the move most likely won't amount to much more than a short-term tradable rally. A lot of technical damage has been done that will take more time to repair. The three-year-plus bull market is long in the tooth, and new leadership needs more time to come into focus.

In an environment like this, it makes sense to continue looking for profit opportunities on the downside.

When building a list of short ideas, you should focus on growth stocks that have already made huge price runs. There are plenty to choose from, among them Priceline.com (PCLN), Ulta Beauty (ULTA), Lululemon Athletica (LULU) and Under Armour (UA).

Of these, the one that looks most vulnerable is Priceline. The stock has risen more than 1,200% since October 2008 -- and, more recently, the stock has seen a series of lower highs and a dry-up in buying demand. These point toward a stock that could be ready to pay a visit to its last breakout area around $553.

Priceline (PCLN) -- Weekly
Source: StockCharts.com

Shares of Priceline gapped up Nov. 2 on strong earnings, but the enthusiasm was short-lived as sellers came into the stock. After early strength, it finished near its session low in heavy volume. Sellers have been in Priceline ever since, and it is starting to meet with resistance at its 40-week moving average. This looks like a ceiling for now. I'm not seeing unequivocal signs of institutional selling in Priceline yet, but it looks like a tired stock.

It's been said in the past that fundamentals often look the best at or near a top. From this perspective, Priceline's earnings prospects still look pretty good, but sales growth has been decelerating in recent quarters and continued weakness in Europe in 2013 could weigh on results going forward. Clearly the company is looking for new growth opportunities, as evidenced by its recent deal to buy Kayak (KYAK). Part of Priceline's recent weakness is due to concerns about slowing growth in coming quarters. These concerns are legitimate ones.

A quick market rally could see the stock rise to its 40-week moving average around $648, but I suspect this level will ultimately be a significant resistance area. All great price runs eventually come to an end, and this could be happening now with Priceline.

When a new market uptrend begins in earnest, former leaders like these will likely be left behind, replaced by a new crop of leaders still in the early stages of growth.

Ken Shreve got his start in the financial markets with Investor's Business Daily (IBD). He spent over 10 years as an editor and columnist for IBD and its website Investors.com. He also acted as the Investors.com "Market Wrap" anchor and presented IBD investing workshops and seminars nationwide. He continues to provide market commentary on national radio and has appeared on CNBC. He now writes Ultimate Growth Stocks, a weekly newsletter at TFNN and hosts Breakout Investing, Monday through Friday from 3 to 4 p.m. PST. Learn more at www.kenshreve.com.

Columnist Conversations

Conn's is beyond disaster du jour today. Key reason: Credit. From its earnings report:
the alibaba ipo date now set for next monday (8th).

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.