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LinkedIn Must Hold Near-Term Support To Avoid Larger Decline: A Technical Look

March 17, 2015 8:15 am
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LinkedIn Corp (NYSE: LNKD) has been one of the leading performers in the social media space and the NASDAQ in general for a while now. The stock made new highs recently right along with the broader indices. Along with the relative strength it has shown thus far during the recent decline and this is a stock that would show up on nearly every technician's screen as a potential long-side play.

Will the stock be able to hold up above key short-term support at $256, however, if the broader market continues to show weakness? Let's take a look at the numbers and the chart for LinkedIn.

What The Bulls See

  • A strong balance sheet: Cash of $3.44 billion versus debt of only $1.08 billion, a current ratio of 4.67 and a debt-to-equity ratio of only 32.47 percent.
  • Probably the most useful of all of the social media companies, with massive utility coming from the company's offering for businesses.

What The Bears See

  • Very rich valuations: A market capitalization of $32.55 billion that trumps the estimated enterprise value of $30.06 billion for the company, a price-to-book ratio of 9.74, a price-to-sales ratio of 14.61 and a P/E ratio of 60 –- which still appears pricey when compared to next year's estimated growth in revenues and EPS of 40.8 percent and 30.5 percent.
  • A lack of profits… still: Net operating margins of -0.71 percent, which translate to net negative levered free cash flow of $12.17 million annually.

The Technical Take

Technicians note that LinkedIn has come down off its high of $276.18 and is now testing the first horizontal line support at $256. The top at $276 represented a test of the upper edge of the intermediate-term uptrend channel (yellow lines on the chart below).

The next resistance above the $276.18 level now becomes another test of the upper edge of that channel, which would likely be around $285 or so at this point. Below $256 support, there is nothing stopping LinkedIn from falling all the way down to around $238, which is the lower edge of the upside gap that occurred in early February. By the time shares made it down there, the lower edge of the uptrend channel may also be coming into play.


LinkedIn shares would certainly appear vulnerable at this point, even if not totally bearish yet. Aggressive long-side traders will need to monitor the $256 level carefully; for any breakdown, there will likely lead to a test of support all the way down at $238.

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