LinkedIn Shares Preparing for a Big Move?

Since going public on May 19, shares of LinkedIn

have undergone huge price swings, indicating that investors are not quite sure how to value the company's stock. On the day of its IPO, LinkedIn's stock surged, reaching an intra-day high of $122.70. Shares quickly retreated, however, closing out the session at $94.25. Over the following month, shares continued to decline, eventually hitting an all time trading low of $60.14 (June 20th) —a 51% decline from the IPO high in just 21 sessions. 13 trading days later, however, shares of LinkedIn were once again trading above $100. Despite trading as high as $115.05 (July 28th), the stock once again began to lose steam, and could not manage to hold above the $100 level. On August 8th, seven days after hitting $115.05, shares were once again trading in the low $70's. While the first two and a half months for shares of LinkedIn can only be described as pandemonium, the stock has been rather subdued (at least by its own standard) over the past three months, consolidating between $70.04 (August 25th) and $95.00 (October 24th). While that is a larger-than-average range, it illustrates that bulls and bears are still fighting for position, and for the future direction of the stock.

Shares of LinkedIn are currently trading at $78.49, which is near the bottom of their three month range. At the current price, investors could see this as a potential buying opportunity, especially considering that the stock has only closed below $75.00 on four occasions since June 27th (August 22nd, August 24th, August 25th, and August 26th). As the six month daily chart (click to enlarge) below shows, every time bears have pushed the stock below $75.00 over the past three months, it has been met with an abundance of buying pressure, propelling the stock back above that price in the process. On their last attempt (November 10th), sellers could only manage to push the stock down to $74.53 before buyers began to once again emerge.

Whether support will hold is impossible to know, but a case can be made, looking at the price pattern over the past three months, that shares of LinkedIn will continue to move towards the upper portion of their range and once again test resistance at $95.00. If bulls can manage to push the price above $95, a short-squeeze is likely to ensue as bears get forced out of the trade and additional buyers enter the market. Such a move could launch shares back above $100 in an effort to test the next major resistance point at $110 – an area that was tested multiple times, albeit unsuccessfully, in July and August.

Despite the recent pop back above $75, the stock is still trading near the bottom of its three month range and could easily reverse course and continue its move to the downside. If considering a short position, a decline below Thursday's low of $74.53 would serve as a good entry point, as a test of $70 would appear imminent. Keep a close eye on that trade, however, as $70 still remains an extremely strong support area that needs to be breached in order to force out longs and accelerate the downside move. If the bears can push the price below $70, longs would likely rush for the exit, as there is virtually no support until the all time low at $60.14 – 23% lower than the current trading price.

What direction shares of LinkedIn will end up moving is impossible to know at this point, but whether you happen to be bullish or bearish, it appears likely that the stock is poised to make a significant percentage move in either corresponding direction. Keep an eye on the support and resistance levels noted above, as they will help in determining viable entry/exit points and establishing potential target areas. Given the high likelihood of volatility, initiating a long straddle option strategy may be something to consider.