Earnings from Yelp Inc. (YELP) and TripAdvisor, Inc. (TRIP) this week will be closely watched by the travel and hospitality industries, looking for insight about customer cash flow being affected by growing geopolitical tensions and recession fears. The travel sector is highly cyclical despite reports to the contrary, losing ground in downturns because folks eat out less often and take fewer trips, instead saving their hard-earned capital for life’s essentials.
Price charts for both review and reservation sites look increasingly vulnerable, raising the odds for profitable short sales. Supporting this view, industry giant Expedia Group, Inc. (EXPE) has dropped nearly 20 points since beating top- and bottom-line estimates in July, despite a wave of Wall Street firms raising targets after the bullish news. This divergence warns investors to avoid rear-view analysis because it might not work in this increasingly dangerous environment.
Trip Advisor came public in the mid-$20s in December 2011 and entered an immediate uptrend, posting an all-time high at $110.24 in the summer of 2014. A volatile pullback entered a descending channel at the start of 2015, with the pattern grinding out lower highs and lower lows into the November 2017 low at $29.50. A 2018 channel breakout stalled in November after reaching the 50% sell-off retracement level, giving way to renewed selling pressure in 2019.
The stock entered a new descending channel in January and continues to trade within those boundaries seven months later. The current decline reached the .618 Fibonacci retracement level of the year-long bounce in May, but the stock has failed to lift off that level, despite more than two months of basing action. In turn, this limp action exposes continued downside into the upper $30s, which marks the last major support level before a round trip into the deep 2017 low.
A positive earnings reaction will face a significant barrier near $50, where channel resistance and the 200-day exponential moving average (EMA) have narrowly aligned. The on-balance volume (OBV) accumulation-distribution indicator offers a ray of hope for beaten down shareholders, trading relatively close to a four-year high, but so far at least, this bullish divergence has had little impact on the increasingly weak price action.
Yelp came public in the low $20s in March 2012 and entered a broad trading range between the mid-teens and low $30s. A 2013 breakout caught fire, generating a steady uptick that posted an all-time high at $101.75 in the first quarter of 2014. The stock carved a double top pattern into 2015 and broke down, entering a downtrend that ended within 50 cents of the 2012 low in February 2016.
A bounce into November 2017 stalled at the .382 Fibonacci retracement level near $50, yielding sideways action, followed by a failed September 2018 breakout attempt. The stock has been in retreat since that time but is still holding above 2017 support near $30, which is narrowly aligned with the .618 rally retracement level. Bulls need to hold this trading floor at all costs or risk continued downside into the 2016 low.
OBV posted an all-time high in 2014 and entered a persistent distribution phase that ended in early 2016. Buying power failed near the midpoint of the two-year range in early 2017, yielding a shallow downtrend that has now been in place for two and a half years. This persistent apathy is extremely dangerous because the force of gravity could take control at any time and trigger more vertical downside. In any case, there are many reasons to sell and few reasons to buy ahead of earnings.
The Bottom Line
TripAdvisor and Yelp earnings could add to growing selling pressure in the travel and hospitality sectors, adding to downtrends that could build impressive short sale profits.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.