Why Priceline Group Inc (PCLN) Could Be Doomed for More Downside

Sentiment is upbeat toward Priceline Group Inc (PCLN), despite its technical troubles

Jan 6, 2015 at 2:21 PM
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It's been a rough ride for Priceline Group Inc (NASDAQ:PCLN) over the past five months. Since hitting its most recent high of $1,329.90 on Aug. 11, the shares have surrendered 18.8% -- including today's 1.6% drop that has PCLN trading near $1,080.09. Option traders have kept the faith, though, and have placed bullish bets over bearish at a rapid-fire rate of late.

Daily Chart of PCLN Since August 2014

Specifically, over the past 50 sessions, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 145,832 calls, compared to 121,732 puts. What's more, the resultant call/put volume ratio of 1.20 ranks in the 97th annual percentile, meaning long calls have been initiated over puts with more rapidity just 3% of the time within the past year.

This optimism is witnessed elsewhere on the Street, as well. Short sellers, for instance, have been exiting their bearish positions in droves. Over the last two reporting periods, short interest plunged 20.8%, and now accounts for just 2.4% of the stock's available float. In fact, it would take less than two sessions to cover these shorted shares, at PCLN's average daily pace of trading, meaning there is little in the way of sideline cash available to help fuel any future rally attempts.

Meanwhile, among the brokerage bunch, 15 out of 17 analysts covering the shares maintain a "buy" or better rating, with not a single "sell" to be found. Plus, the consensus 12-month price target of $1,345.21 stands at a 25% premium to current trading levels, and in territory not charted since last March.

From a contrarian perspective, the stock could be poised for additional downside, should option bulls and/or analysts capitulate to its withstanding technical troubles. Additionally, Priceline Group Inc (NASDAQ:PCLN) is tentatively slated to head into the earnings confessional in late February, and in the session subsequent to reporting last November, the security shed 8.4%.

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