Groupon (NASDAQ: GRPN) is trying to reinvent itself without much success. Their earnings have missed by a mile and the e-commerce company faces stiff competition from Amazon and a number of smaller online retailers.
The current environment is not really helping as a lot of consumer spending in the United States is still lagging behind the curve. This forces companies to recalculate their business plans as well as exploring new channels of revenue and new directions for their businesses.
With oil trading at a five-month low, there is little to indicate a pick-up in inflation. This means the US Federal Reserve’s potential September hike is likely and will be a “one-and-done” move now that the NFP is behind us.
This week’s Retail Sales in the United States should offer us more clues about the state of the US consumer and any sign of weakness should affect GRPN as well in the months to come.
From a technical point of view, GRPN shares are free-falling after making a series of three higher highs at the $8 mark, and that was a reversal pattern. Indeed price reversed from that area as now it is trading $4.43/share, without any signs of reversing higher as buyers are simply disappearing.
However, there is a catch in the chart as the whole move from the $8 to $4.40/share area is made in a straight line, one that is channeling really well. This is a sign of a correction and not an impulsive move.
An impulsive move needs to have a different structure for the second and the fourth waves as they need to alternate. There is no alternation here and this means that by the time the downward channel is broken we can safely assume that the correction is done and a new wave in the opposite direction started.
Therefore, the plan is to wait for the Retail Sales in the United States to be released and draw a trend line to see the upper side of the channel. By the time the 5$ mark is broken, we can say the channel is broken as well and that would be a nice place to buy a call option with as big an expiration date as possible.
If Retail Sales disappoint then look to buy put options by the time the trend line is tested, so $4.80 would be a nice striking price with an end of month expiration date.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
