How to Trade Expedia Stock as Silver Lake, Apollo May Buy a Stake

Expedia is reportedly close to selling a $1 billion stake to Silver Lake and Apollo. Here's how to trade Expedia stock on the news.
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Expedia Group  (EXPE) - Get Report is reportedly selling a billion-dollar stake to private equity firms as revenue declines due to covid-19 lockdowns and slumping travel worldwide. 

The stock of the Seattle online travel company gapped higher in morning trading, as high as $64.12, but the stock remains deep in bear-market territory.

The travel-booking website has seen a significant slide in revenue, given stay-at-home safety strategies tied to the coronavirus pandemic. Here are the details of this story as reported by TheStreet.com.

The stock opened Wednesday at $62.49, down 42% year to date and in bear-market territory 57% below its 52-week high of $144 set July 26, 2019. 

The stock is also in bull-market territory 53% above its March 18 low of $40.76.

The stock is reasonably priced with a p/e multiple of 12.3 and a dividend yield of 2.27%, according to Macrotrends.

The Daily Chart for Expedia

Daily Chart for Expedia

Daily Chart for Expedia

Courtesy of Refinitiv XENITH

Shares of Expedia had a huge price gap lower on Nov. 7 on a negative reaction to earnings. 

A death cross then formed on Nov. 22. This sell signal occurred when the 50-day simple moving average fell below its 200-day simple moving average, signaling that lower prices would follow.

A positive reaction to earnings on Feb. 14 caused the stock to test its 200-day SMA at $122.05 as a selling opportunity.

The stock gapped below its semiannual pivot at $113.58 on Feb. 24, which tracked the stock to its March 18 low of $40.76.

The stock has been in a trading range between $40.76 and $70.71, the March 25 high. This range is below its monthly risky level for April at $74.06.

The second-quarter risky level is the horizontal line at $105.24.

The Weekly Chart for Expedia

The Weekly Chart for Expedia

The Weekly Chart for Expedia

Courtesy of Refinitiv XENITH

The weekly chart for Expedia is neutral, with the stock below its five-week modified moving average at $69.98. 

The stock is well below its 200-week simple moving average, or reversion to the mean, at $121.80. 

A test of this key average at $123.70 during the week of Feb. 21 was a clear selling opportunity.

The 12x3x3 weekly slow stochastic reading is projected to rise to 22.89 this week from 21.2 on April 17.

The stock needs a weekly close above $69.98 before being upgraded to positive.

Trading Strategy: I do not have a level at which to buy this stock on weakness. Reduce holdings on strength to the monthly risky level at $74.06.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019 were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Second quarter 2020 and monthly levels for April were established based upon the March 31 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.