Priceline.com (PCLN) was once a great leading stock of the 2009 uptrend. However, it is one of a few leaders that has definitely put in a top and after a very lame rally looks to be ready for a move lower.
Investors who focus on fundamentals will argue that the numbers are fantastic for Priceline.com. Facts and 130 years of stock market history prove that fundamentals are the best at a stock's top. Now this is not to say that after a downtrend that Priceline.com will not be a good stock to go long once again. I am more than willing to revisit on the long side, once the market favors leading stocks to the long side again. I mean this stock has great fundamentals. Sadly, for those that believe higher prices are in order, right now, technical analysis is not on your side.
Those fundamentals I talked about look great right now. During the past eight quarters, YOY, EPS growth has come in at 40%, 51%, 34%, 43%, 30%, 44%, 54%, and 56%. Sales growth, during that time, has been just as impressive with gains of 44%, 35%, 21%, 15%, 17%, 30%, 33%, and 26%. On top of that 2010 and 2011 EPS estimates are for growth of 28% and 20% respectively.
With a cash flow of $9.70, 0% debt, an EPS growth rate of 60%, a P/E ratio of 20, and a return-on-equity of 42% it seems silly to be short a stock like this right? Wrong. Like I mentioned earlier past leaders of a bullish cycle always top out way before the fundmanetals do.
I know many investors do not like to look at technical analysis but enough research has been done that has proven that stocks setup in certain chart patterns and have certain strong fundamentals (EPS and sales growth, profit margins, low debt, cash flow, return-on-equity) before their biggest price runs. On the other end, history and facts also prove that fundamentals are completely worthless when spotting a top in a stock.
Fortunately for those of us that have decided to study the best stocks that the stock market has offered up the past 130 years we know what to look for when to buy and also when to sell a stock.
On that end, Priceline.com has definitely setup a chart pattern that suggest a move back toward the 2009 lows are more-than-likely in store.
After a strong uptrend from the October 2008 lows to the April 2009 highs, Priceline.com broke down below the 50 day moving average on heavy distribution. Normally, you see some kind of rally attempt before a stock then breaks down below the 200 day moving average on strong volume but Priceline.com showed no bounce whatsoever and continued with the selling.
Right now, Priceline.com is attempting a rally but a very important piece of the puzzle is missing: Volume. There is no accumulation by institutional investors at all right now and the stock appears ready to roll back over to the downside.
What is worse is that the downtrending 50 day moving average is inching its way closer to the 200 day moving average and appears to be only a few days away from a very important technical pattern that is historically very bearish for stocks after such an uptrend--the death cross. If the 50 day moving average closes below the 200 day moving average and the stock price meets at these key resistance lines and then reverses on higher volume, I will definitely be looking to get short Priceline.com despite the strong fundamentals.
For those of you who are not familiar with my investing, I just want you to know that PCLN was a long position in my IRA from July 2009 to May 2010 when it was in an uptrend. In the stock market, the trend is your friend when you know how to use the trends, and the trend for this stock is now definitely down.
Disclosure: No Position