Market Overview

Groupon Back At All-Important $5 Level

Groupon Back At All-Important $5 Level
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After dipping to a 2017 low of $2.90 in June, Groupon Inc (NASDAQ: GRPN) has delivered a surprising rally over the past few months and has overtaken the $5 level for the first time in roughly a year.

The $5 level can be an important level for stocks to maintain from a psychological standpoint. In addition, stocks priced under $5 are off limits for certain institutional investors and short sellers.

Groupon took a run at the $5 back in February when rumors began to circulate that Alibaba Group Holding Ltd (NYSE: BABA) could be a potential buyer. However, the rally stalled at $4.80 when the rumor mill cooled. The most recent rally seems to be driven by Groupon’s improving outlook. DA Davidson initiated coverage of Groupon with a Buy rating back on Sept. 22. The company has also delivered earnings beats in seven consecutive quarters.

At this point, bulls who have captured the huge rally and bears who are looking for a potential entry point are looking to the chart for answers.

For now, there seems to be no clear resistance between $5.25 and August 2016’s high of $5.94, unless the stock simply overheats and runs out of steam. A pullback to February’s high of $4.80 might not necessarily be bad news for bulls, as it would establish a previous resistance level as a new support level and give the stock a chance to reset prior to making a run at $5.94.

If at any point Groupon breaks back below $4.80, it likely means the recent rally was just yet another short-term rally, as the stock continues to trade mostly sideways in a wide range of between around $3 and around $6 pending major fundamental news.

Joel Elconin contributed to this story.

Disclosure: The author is long BABA.

Related Link: Jim Cramer Gives His Opinion on Groupon And Baidu

Image: Rusty Clark ~ 100K Photos, Flickr

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