There are strategies that have passed the test of time, which we can refer to as “Tried & True”. “Cash is King” during economic downturns or the infamous, “catching a falling knife”, are a few examples. I have found that the lessons of the great speculator, Jesse Livermore fall into this same category. During times of market confusion or abnormal stock behavior, I use his “Tried & True” lessons to guide my own trading decisions.
How does Priceline (PCLN: NASDAQ) look through his eyes?
Priceline.com, the online travel discounter has undoubtedly been a market leader, a darling to momentum and growth seeking investors. PCLN has appreciated from the $50 area to over $550 since Oct of 2008. This “market-bragging” move has been attributed to stellar growth, perfect technical indicators and huge market interest.
Some key technical data points for PCLN include: Simple Moving averages and SmartStops™:
– 10 day= $511.47
– 50 day =-$510.02,
– 200 day =$469.70
Here are three ways to view Priceleine’s stock through Jesse Livermore’s eyes:
1. “Every stock is like a human being, expressing different personalities…I often study stocks like I would study people, after a while their reactions to certain circumstances would become more predictable…On the other hand a speculator must never become complacent, or relaxed to the point that he misses the clues that a stock has topped out, and is creating a pivotal point that will set it off in a new direction, perhaps a reversal in trend. My Motto: ‘Be ever vigilant for the danger signs.’” –Jesse Livermore, How to trade in stocks.
Priceline.com’s personality over the past few years has been, predictable. The stock experienced only one break in upward momentum since its lows in October of 2008. Since that break in June of 2010, its 50 and 200 day simple moving averages (sma) have not been broken. However, the past few months of trading has complicated that predictability. After reaching news high at over $560/share the stock has yet to regain new high territory and has broken its 50 day sma several times. Last week the stock even retreated under its 200 day sma!
2. “Watch market leaders, the stocks that have led the charge upward in a bull market. When these stocks falter and fail to make new high, it is often a signal that the market has turned. As the leaders go so goes the entire market.” –Jesse Livermore, How to trade in stocks.
On August 5th 2011, PCLN released huge second quarter 2011 earnings. They beat the average EPS estimate of $4.89 by $0.60; they beat on revenue and even raised their third quarter EPS forecast. The stock gapped up on huge volume to a daily at approximately $540/share. This did NOT break its high of $560/share and it quickly sold off over the next few weeks.
3. “Beware after a long trend up when volume gets heavy, and stocks churn. This is a clue, a red-alert warning that the end of the move is near. This is also a possible indication of stocks going from strong hands to weak hands, from the professional to the public from accumulation to distribution. The public often views this heavy volume as the mark of a vibrant, healthy market going through a normal correction, not a top or a bottom.” –Jesse Livermore, How to trade in stocks.
Average daily volume on PCLN has remained relatively high at 1.5 million shares a day (Yahoo Finance, 10 day average volume), including the August 5th 2011, earnings release that saw more than 4 million shares trade hands. Yet the stock has not broken out to new highs. Also quoted from yahoo finance’s insider transactions; within the last 6 months over 229k shares in 24 different transactions have been sold.
Has Pricline.com’s trend been broken? Truthfully, I don’t know but the change in the upward personality, the lack of new highs with good fundamental news and the current churning of the stock are danger signs highlighted by lessons of the famed speculator, Jesse Livermore. These red-flag, danger signs are enough for me to keep a close eye on the upcoming movements of PCLN.
SmartStops.net has also recognized this, listing PCLN’s risk at “above average”. They issued a SmartStop short term exit trigger at $492.12 on August 4th 2011 and a long term exit trigger on August 18th at $451.50. Their current Short term SmartStop is $451.43, Long term SmartStop is $434.95 and a reentry point at $547.88.