Panic Buying, Profit-Taking and Priceline’s Post-Earnings Pop

Among the stocks that have been on a tear this year, (NASDAQ: PCLN) has not only rewarded investors with a gain of 25% in 2012. The stock has also rallied convincingly above a long-term trading range that extended back from the spring of 2011 until just a few weeks ago. For many traders – especially those with technical inclinations – the bullish portents of this kind of move are as powerful as it gets. While market newbies gawk at the parabolic moves of stocks that trade like rocketships, veteran traders and investors are far more fond of breakouts above extended bases like the one in PCLN.

But with the breakout well underway, the question of the moment is whether traders who didn’t buy the stock when it was trading at far less overbought levels should chase PCLN higher now near month’s end.

When factoring in the fact that Priceline is due to announce quarterly earnings on Monday, waiting for a pullback may be all the more prudent approach. In the short-term, shares of Priceline had closed higher for five out of the previous six trading days heading into Monday’s session. And of these days, three were in technically overbought territory.

In edging still higher on Monday – and likely headed for its fourth overbought finish over the past week and a half or so – PCLN is due for a short-term pullback. Regardless of how “positive” or “negative” the news out of the company is on Monday, traders should not be surprised if the stock gets sold in the days after the announcement.

It may be worth nothing that Priceline’s main rivals started to move higher after short-term pullbacks. Shares of (NASDAQ: EXPE) closed lower for six days in a row in the wake of rallying to new, 52-week highs in mid-February. EXPE is up less than 1% from those correction lows, and is still closer to recent short-term lows than short-term highs.

Orbitz Worldwide (NYSE: OWW) had a sizable, one-day bounce on Friday, the biggest move in the stock’s oversold rally after a nearly-month long process of profit-taking. The stock is now up five out of the last six after trading at breakeven levels – but short-term overbought – on Monday. OWW has a negative edge in the short-term of one and a quarter percent.

The upshot is that all three stocks appear vulnerable to additional weakness in the short-term, particularly with both Priceline and Ortibz Worldwide closing overbought ahead of trading on Tuesday. Traders looking to add either of these stocks to their portfolios likely will find them available at lower levels sooner than they might think.

Stock ratings provided courtesy of PowerRatings. Information about quantified edges on stocks provided courtesy of The Machine

David Penn is Editor in Chief of