The following chart places latest decline in perspective. The decline has been swift and it only took less than three weeks for PCLN to fall below $1,000 from $1.150.
The question is where the stock is going to go from here.Bears may say that the stock is headed for doom now that is broke below the $1,000 resistance level. Not to mention that overall market sentiment is weak, most technology stock have been suffering. Google Inc. (NASDAQ:GOOG) slipped 1.5% in the last month and so did Apple Inc. (NASDAQ:AAPL).
However there is a better approach in our opinion. And that is the oversold/overbought indicator. This method looks into stock trading characteristics, e.g. how much a stock typically moves, and thus is more realistic to predict future price movements. Experience has taught us that when a stock traded well below its normal price range, let's say two standard deviation below its mean, it usually makes a quick comeback. To make life easier: it happens only 3% of the time that a stock trades more than two standard deviation away from its medium price.
It has happened four times in the past 52 weeks that The Priceline Group (NASDAQ:PCLN) fell well below its mean price - that is the hairy white line in the middle. The blue line represents the stock price. The fourth time is last Thursday and Friday, a time when PCLN closed below $1,000. And that price was so unusually low compared to previous prices that the stock price fell into the light teal colored band. Whenever that has happened in the past, PCLN recovered fast.
Will that happen to PCLN this time? If history is any guide, the answer is yes. Based on this technical indicator, PCLN is there to make a comeback.