Former momentum darling GoPro Inc (GPRO) is gaining ground in Wednesday’s pre market session after announcing that Black Friday through Cyber Monday camera unit sales had risen more than 35% year over year at retailers and 33% at the company’s online portal. They also released details of a major restructuring that will reduce the work force by 15% and save $660-million in annual operating expenses.
The news could generate a multi-week short squeeze following a dreadful two-month period in which the stock has dropped more than 40%. It’s currently testing the deep lows put into place in the first and second quarters of 2016, setting up a potential triple bottom reversal. Timely long positions could book high percentage gains during this updraft, with the 200-day EMA sitting nearly 50% above Tuesday’s closing price at $9.83
GPRO Weekly Chart (2014 – 2016)
The stock went public at $28.65 in June 2014 and entered an immediate uptrend that stalled near $50 one month later. A two month consolidation yielded a powerful breakout that lifted within two points of triple digits in October, marking the top ahead of a steady downturn into the first quarter of 2015. The decline failed the breakout in February, coming to rest in the upper $30s in March.
It spent the next five months grinding higher in a bear flag pattern that stalled just below the 50% selloff retracement, ahead of an August decline that broke flag support. Selling pressure eased in October after reaching the 2014 IPO print (red line) but that level broke three weeks later, sending price into a series of all-time lows that penetrated single digits in January 2016.
A recovery wave into April 2016 stalled in the mid-teens, yielding a selloff and test of the February low in May. That level broke but buyers stepped in quickly, generating a healthy bounce that set off a series of bullish double bottom signals. The subsequent uptick unfolded in a shallow rising channel that ran into a buzzsaw of sellers when it reached resistance at the underside of the 50-week EMA, triggering a fresh decline that printed eight consecutive weeks of lower prices.
It held above support near $9.00 despite intense gravity, setting up this morning’s fresh assault into double digits. A deeply oversold weekly Stochastics oscillator predicts this rally attempt could gain momentum and reach a second test at moving average resistance. Even so, the monthly reading remains stuck in a sell cycle that started in October, with those headwinds likely to trigger setbacks while rising price attempts to build accumulation off the deep low.
GPRO Daily Chart (2015 – 2016)
The stock gave up more than 55-points during the August 2015 into February 2016 selling wave, with a Fibonacci grid stretched across that level placing the IPO print (red Line) right at the .386 retracement. That marks major resistance in the upper $20s that’s likely to end long-term recovery efforts. The 50- and 200-day EMAs represent logical short-term rally targets, with resistance centered at $12.25 and $15.00.
On Balance Volume (OBV) plunged to a new low in May and turned higher, gaining more ground than price into the October high. The subsequent distribution wave failed to unravel mid-year buying pressure, pointing to bottom fishers hoping for good news, which may have come this morning. Meanwhile, the declining channel in place for the last month could break to the upside in the regular session, trapping short sellers looking for an eventual bankruptcy filing.
The Bottom Line
GoPro is trading above 10 after reporting stronger than expected holiday sales and announcing a major restructuring effort. The stock hit extremely oversold technical readings before the news, setting up ideal conditions for a short squeeze that could reach moving average resistance in the mid-teens.
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