Stock Of The Day: Is The Groupon Rally Over?

Trading in Groupon, Inc. GRPN stock is quiet Thursday. It has been trending higher. There is a good chance it soon reverses and sells off. It is overbought and getting close to a resistance level.

Our team of technical analysts has named Groupon as our Stock of the Day.

The bottom part of the chart is the Relative Strength Momentum Indicator (RSI). It was designed to measure a stock's momentum. If the blue line is above the horizontal red line, it indicates overbought conditions.

As you can see below, that is the case now.

The term overbought means that something is trading above what would be its typical or usual trading range. This is caused by aggressive and emotional buying.

Some traders will enter the market as sellers because they will be expecting a reversion to the mean or a reversal. Their actions could put pressure on the price and force it lower.

Over the past year, each time the RSI indicated overbought conditions a move lower followed.

Groupon is also getting close to a resistance level. There could be numerous traders and investors interested in selling around $18.

Some of these traders and investors may worry that they will miss out on the trade. They are afraid that others who wish to sell may reduce their offering prices and undercut them. They know that people who wish to buy will go to whoever will sell them shares at the lowest price.

So, these worried traders and investors reduce the prices they are willing to sell at. Others see this and do the same. This could start a snowball effect that can drive the price lower. This is why stocks tend to sell off after reaching resistance levels.

Stocks can reverse and move lower in the market when they are overbought and near resistance. It could be about to happen with Groupon.

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