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Pandora (NYSE: P), the online music supplier and radio station, appeared on my bullish scan last night. After delving deeper into the stock, it looks to be a great buy at this time.
Pandora stock has gone through its second major pullback since going public and the first in over a year. But at this point, it looks like the pullback is overdone and the stock looks ready to resume its move higher.
Looking at the daily chart, I see several things going on. Pandora stock is tremendously oversold based on the daily slow stochastic readings at the bottom of the chart. We can see that the short-term line just crossed bullishly over the longer term line. It isn’t important to understand how these numbers are derived, it is important to see that when this has happened in the past, the stock has moved higher.
There are several layers of support converging right around the $29 level. I see a trendline that connects the lows from the last six months and is now just above the $29 level.
I can also see that Pandora stock has dipped down to where the stock experienced a gap higher back in January. Some technicians will argue that the stock has to fill that gap before it can move higher. But I like the fact that the low during the most recent pullback is just above the gap opening.
Investor hindsight is the reason we see gaps and former highs serving as support after a pullback. Perhaps an investor was looking to buy Pandora $28.50 level back in January, but never got the chance because the stock gapped through that price and then took off on a two-month rally that saw the stock rally almost 40%. Now that same investor sees the chance to get in at the $29-$30 range and jumps at it.
The weekly chart also provides some insight as to why I like Pandora stock in this range. I see the trendline in the weekly chart as well, but it is the slow stochastic readings I want to focus on.
If you look at the two green circles, you’ll see where the slow stochastic readings were when the trendline was being formed. Now the slow stochastic readings are in the same general vicinity and in fact are slightly lower than those two instances. This means that the stock is ready to resume the uptrend.
Looking at the sentiment indicators, the only one that really stands out as being somewhat bearish are the analyst rankings. Out of 31 analysts following the stock, 17 have it rated as a “buy”, 11 have it rated as a “hold” and three have it rated as a “sell.” This may not seem all that bearish, but when you consider that the stock is up 200% in just over a year, it is unusual.
The combination of the daily chart, the weekly chart and a certain amount of skepticism makes Pandora stock a better investment than most stocks right now.
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