Even the Priceline Negotiator Needs a Break from Spending

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While many issues formed their respective bear market lows back in either late-November 2008 or March 2009, Priceline.com bottomed several months in front of the S&P 500 in October of 2008. Without question, the global online travel company, with a clever business model that conveniently allows you to negotiate favorable deals, has been one of the marquee stocks in the entire market over the past three years. You are talking about an appreciation from $45 per share to just over $560, pocketing famous spokesman William Shatner hundreds of millions of dollars along the way.

As the holiday season rapidly approaches, conventional wisdom dictates not only that fund managers will scramble to own “the winners” through Christmas, but also that bears are going to step aside given the likely lower trading volumes and traditional bullish seasonality. So, going long PCLN here must be a no-brainer then, right? Well, technically there are several major reasons to factor additional risks into any potential upside rewards.

First and foremost, the more mature a primary uptrend becomes, the more vulnerable it is to late-stage base failure. In a similar vein to my post on Salesforce.com last Friday, that does not necessarily mean that the stock has topped out forever. Instead, it simply means that the chart needs to, at a minimum, form the basis for another sustained move higher, which is a lengthy and tedious process at best. Beyond that, Priceline has formed multiple tops at the $550 area over the past several months. While it is tough to be a bear if price can get above that level, the risk of a multiple major top being formed is high and in no way should be cavalierly dismissed, as some of the most vicious and ferocious declines are seen when price is finally turned away from a multiple top serving as impossible resistance.

There is also the possibility that this is simply a bullish consolidation pattern before eventually going much higher and continuing the uptrend.  Generally speaking, my analysis almost always revolves around looking at potential rewards in a trade and in the market through the prism of risk. Given the increased price swings that you can see on the below weekly chart since last April’s first touch of the $550, I would argue that we are seeing an increasingly violent confrontation between bulls and bears. As you know, loud arguments are reflected on charts via loose and sloppy patterns which tend to favor bears over bulls, especially after a prior steep uptrend. So, again, extreme caution is urged for longs.

After becoming part of the elusive ten-bagger (and more) category, Priceline.com might very well be a microcosm for many of the marquee, high momentum growth stocks over the past three years. The stock has earned a band of loyal longs who have been rewarded for buying and holding since 2008. This time around, they might be out of line and pushing their luck a little too much, regardless of how skilled their negotiating tactics may be.

Disclosure: I have no position in PCLN at the time of this writing. 

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