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More Follow-Through For EXPE?

05/31/12 08:36:37 AM
by Donald W. Pendergast, Jr.

Breakouts happen all the time in individual stocks, but they need to be evaluated according to the big picture.

Security:   EXPE
Position:   N/A

The price and volume breakout exploration in MetaStock 11 is one of the most effective scanning/screening tools in the entire platform, allowing a trader or analyst to quickly locate stocks that have risen by 5% (or more) on daily volume that is at least 50% greater than its 50-day moving average of volume. When combined with other technical and fundamental analysis tools, the resulting evaluation may help you to better stay on the right side of powerful moves in the stocks you follow. Here's a look at the powerful price/volume breakout in shares of Expedia, Inc. (EXPE) (Figures 1 and 2).

FIGURE 1: EXPE, DAILY. Some chart patterns almost appear to jump right off of the page at you. This is a classic flag at half-mast pattern that has its roots in the massive bullish gap of April 27, 2012.
Graphic provided by: MetaStock.
EXPE enjoyed a wonderful bullish run, one that began amid the panic selling seen back in the latter part of 2008 (remember Lehman Brothers and Bear Stearns?) and took the stock from a bargain-basement low of $5.64 all the way up to its recent post-crash high of $46.07 -- a gain of more than 700% in little more than 42 months.

Clearly, institutions and long-term investors like the idea of a stock with this kind of persistently trending behavior, but with the recent, giant bullish gap now having been successfully tested, even shorter-term swing traders should have little trepidation in preparing to pick their entry spots in the stock in the near term.

We already know the stock is in a long-term, mega uptrend, so the next thing we want to look for is a healthy, persistently bullish -- meaning that it is above its zero line -- long-term money flow pattern. As we check out the 100-period Chaikin money flow histogram (CMF)(100), we find that it has been above its zero line since November 1, 2011, a positive sign for this long-running bull market in EXPE shares.

Now, we also want to check out the recent trend strength of the stock, and the 14-period Aroon trend intensity indicator is one of the best tools around to confirm the trending strenght of a given market swing. The AroonUp component of the indicator is now pegged at its upper bullish boundary (with a value of 100), thus offering EXPE bulls even more fuel to light their respective fires.

FIGURE 2: RESULTS. EXPE closed 6.79% higher on May 23, 2012, on daily volume that was more than 100% greater than its 50-day average of daily volume.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
The actual chart pattern that has manifested over this long-term bullish backdrop is perhaps even more fascinating, especially to market technicians. In the wake of the massive bullish gap of April 27, 2012, EXPE began to form a very nicely defined flag pattern -- one that the recent price/volume breakout move has surged higher from. It's important to note that the lower border of the flag acted as de facto "gap support" and this no doubt got the bulls excited, seeing as how the stock wasn't all that interested in dipping back down into the open gap at all. Given the ultrabullish backdrop, this break higher should be given every benefit of the doubt in the next few weeks, as the probability for more upside is high. Playing EXPE could involve any of the following strategies:

1. Buy a near-term, slightly in-the-money covered call (with three to six weeks of time premium for the sold call), and use the 21-day exponential moving average (EMA) as your trade management stop-loss point until:

A) The position is stopped out
B) The stock is called away.

Swing traders could consider buying on a break of 46.07, using a two-bar trailing stop of the daily lows as their trade exit guideline. Intraday traders could use floor trader pivots, key trendlines, and Fibonacci support levels to help fine-tune long-only entries into EXPE, closing such short-term trades out by the end of the daily trading session.

The style of trading is entirely up to you, but at least you now have a solid grasp of the bullish technical state of EXPE. Never risk more than 1% to 2% of your account equity, no matter how you choose to play EXPE, regardless of how bullish you may be on this or any other stock right now.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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