Groupon (GRPN) Buy Setup From Support Confluence

Groupon shares have been bouncing from a support level originating from the monthly charts. Price action has been volatile as a result of fundamentals, but the strong monthly support offers a clear technical level to trade against.

On the monthly chart, a sharp decline in late 2011 to early 2012 was met with support at $2.60. The level marks the 2012 lows, and a recovery reached a high of $12.76 in the second half of 2013. At the start of the current year, shares have found support at the same level once again, and have been trading in an uptrend with a clear succession of higher highs and higher lows. The recovery reached a high of $5.94 prior to turning lower.

GRPN Daily Nov 3
The downturn carries momentum behind it, but a confluence of support offers a technical entry. On a daily chart, strong support is seen around the $3.60 area. There is a rising channel that connects February lows with late June lows. A 76.4% Fibonacci retracement measured from June lows to August highs falls at $3.63 while the 88.6% Fibonacci retracement falls at $3.27 to carry a confluence with a horizontal level from December 2015 resistance. Another horizontal level at $3.57 marks July highs ahead of a gap higher. With several important support levels within close vicinity, a bounce can be expected from current prices.

While the near-term trend from August highs is clearly down, with momentum behind it, the broader trend from February is a clear bullish trend. A push back below June lows at $2.92 would invalidate the bullish trend and hence the stop loss for the trade is set below the level.

Within the bullish trend, there is potential for share prices to return to August highs near the $6.00 price point. The take profit level has been set at the level for this reason.

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The current trade setup carries some risk as the decline carries momentum, the risk to reward, however, is favorable.

Trade Parameters

Entry: $3.65
Stop: $2.91
Target: $6.00
Risk to Reward: 1:3
Time Frame: 2-3 months

DISCLAIMER: The author does not hold any positions in the above-mentioned company.

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Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.