Online restaurant reservation firm, OpenTable (OPEN), has quietly and orderly lifted higher in recent months. Each jump has been followed by a consolidation, thus allowing the patterns to steadily resolve to the upside. The latest sideways consolidation phase is now a little over a month old, and should the defined resistance level be overcome, the stock would set up for a juicy long-side trade with potential double-digit returns.
For a little context, let's first look at the chart of the Consumer Discretionary Select Sector SPDR (XLY). Technically, OPEN belongs to the technology sector; however, its business model is somewhat more cyclical, and therefore, the consumer discretionary sector seems more appropriate.
In the chart, we can see that the uptrend off the October 2011 lows is strong yet orderly. In 2013, the sector has steepened its slope and is getting somewhat overbought, but the longer-term uptrend remains intact.
The weekly chart of OPEN shown below gives us some good initial clues as to the potential upside left in the stock in the intermediate term. After a tumultuous rally in 2010 and the first few months of 2011, investors flipped the downside switch and the stock gave up most of its gains in the ensuing months.
As most assets do after such a roller-coaster ride, OPEN then started to carve out a 12-month-long consolidation phase bottom. If we look close enough, we see that in August 2012, the stock tried to retest its 2011 lows, but managed to put in a bullish weekly candle and a higher low.
From there, it was only a matter of time until the stock had coiled up enough to spring higher and through resistance (blue line) in early 2013 as the broader market ripped higher into the new year.
The 24% surge so far this year has brought the stock into its first noteworthy resistance zone, namely the 38.2% Fibonacci retracement of the April-December 2011 downturn. The next important resistance area comes in closer to $75, which is the 50% retracement of the downswing. This tells us that traders with medium-term time frames could still enjoy more upside.
Moving on to the daily chart of OPEN shown below, the aforementioned series of consolidation phases followed by breakouts is more clearly visible. The latest consolidation phases were in early January to early March (followed by a strong four-day breakout), and then another thus-far month-long consolidation.
Given the bullish setups on both the sector and weekly charts above, the stock stands a good chance of working higher in the near term.
The company is scheduled to report earnings on May 1, and I for one, as a matter of principle, will not be holding a position through the announcement, assuming the stock breaks out before then. Playing the earnings game, barring some clever options strategies where applicable, is a losing one, on average. In the vast majority of cases, the better setups occur in the days after an earnings report.
OPEN presently sits in the middle of its latest sideways consolidation phase. As such, I am patiently waiting for a potential breakout past the $64.20 level, where I am looking to initiate a long position in the stock. As discussed above, the price target I have in mind is $75, which coincides with the 50% retracement of the large sell-off.
Recommended Trade Setup:
-- Buy OPEN on a daily close above $64.20
-- Set stop-loss at $62
-- Set price target at $75 for a potential 17% gain in 6-12 weeks