NEW BEARISH Plays
Ctrip.com International - CTRP - close: 48.34 change: -0.20
Stop Loss: 50.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 15, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.7 million
New Positions: Yes, see below
Occasionally stocks can get ahead of themselves. Investor enthusiasm can become too frothy that drives a stock too high and shares eventually fall back to earth. That could be the case with CTRP.
CTRP is part of the services sector. According to the company,
"Ctrip.com International, Ltd. is a leading travel service provider of accommodation reservation, transportation ticketing, packaged tours, and corporate travel management in China. It is the largest online consolidator of accommodations and transportation tickets in China in terms of transaction volume. Ctrip enables business and leisure travelers to make informed and cost-effective bookings by aggregating comprehensive travel related information and offering its services through an advanced transaction and service platform consisting of its mobile apps, Internet websites and centralized, toll-free, 24-hour customer service center. Ctrip also helps customers book vacation packages and guided tours. In addition, through its corporate travel management services, Ctrip helps corporate clients effectively manage their travel requirements."
First the good news, CTRP is in a growing business. According to a Goldman Sachs analyst, the online travel market in China could triple to $200 billion by 2020. In October this year CTRP made a deal with rival online Chinese travel company Qunar, which was owned by Baidu.com (BIDU). The two companies merged and together will control 70% to 80% of the hotel and air ticket market in China. BIDU now owns 25% of CTRP. Larger rival Priceline.com (PCLN) is also investing in CTRP. PCLN recently invested $500 million in a convertible bond deal with CTRP, which could eventually lead to PCLN owning about 15% of CTRP.
CTRP is also seeing strong business results. Their Q3 earnings, which came out on November 18th, were way above expectations. Management then raised their Q4 guidance above Wall Street estimates. The stock also had a 2-for-1 split, which occurred on December 1st. If that wasn't enough good news the stock is also being added to the NASDAQ-100 on Monday, December 21st.
The merger news with Qunar produced the gap higher in October. The strong Q3 earnings and bullish guidance produced the big gap higher in November. With a rally from $30 in late September to $57 in mid November it appears CTRP just ran too far too fast. The stock has started to correct lower.
The stock split has taken place and it is common for stocks to see a post-split depression. They can also see a post-earnings depression after a big rally on the news. One could argue that all the good news has been priced into CTRP. What's the next catalyst to buy it?
Technically shares are breaking down. The bounce today failed at round-number resistance at $50.00. Shares did not participate in the market's rally yesterday or today. It looks like the pullback in CTRP is not over yet. The point & figure chart is bearish and forecasting at $41.00 target.
Now eventually CTRP will find support and shares will rebound again but support could be all the way down in the $37-40 zone. Yesterday's intraday low was $47.74. We are suggesting a trigger to launch bearish positions at $47.65. Please note this is an aggressive, higher-risk trade. The stock can be very volatile. Use small positions to limit risk.
Trigger @ $47.65 *small positions to limit risk*
- Suggested Positions -
Short CTRP stock @ $47.65
- (or for more adventurous traders, try this option) -
Buy the MAR $45 PUT (CTRP160318P45) current ask $3.80
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike