The story of Snap Inc (NYSE:SNAP) is one rife with lessons on the dangers of playing initial public offerings (IPO). Since bursting onto the public scene at $24 and hopping around like a jackrabbit, SNAP stock has been halved. But while the vultures are circling, some positive technical developments are actually cropping up.
The downward spiral seems to be slowing, and bottom fishers are taking note.
Is Snap Bottoming?
The latest in a long line of setbacks for SNAP stock arrived in the form of a disappointing earnings release last week — the second of its relatively short public life. So far the stock is 0-for-2 in its quarterly attempts at impressing the Street.
Last week the Snapchat provider fell 14% in a one-day sucker punch which carried shares to a new all-time low. But since then, the price action has been surprisingly constructive. Monday saw a strong bullish engulfing candle on higher volume than the earnings gap. And today the stock is popping 3.3%.
With the sharp snap back (pardon the pun) we now have a momentum divergence forming in the Relative Strength Index (RSI) indicator. While SNAP stock created a lower swing low, the RSI carved out a higher low. This signal suggests the downtrend is slowing in momentum. Consider it an early warning sign that the trend could be turning.
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The principal problem with pulling out the pom-poms at this stage is we’ve yet to see any upside breakout. Heck, SNAP still sits below its falling 20-day moving average.
But hey — all trend reversals start somewhere.
The test of the turnaround will be $14. That resistance zone needs to be penetrated for the short-term trend to reverse. A pop above that, and it’s smooth sailing to the 50-day moving average at $15.64.
The Trade on SNAP Stock
While confirmation seekers may wait for a breach of $14 before pulling the trigger, early birds looking to jump in now should consider selling the Sep $12 puts for 36 cents.
The short put trade obligates you to buy SNAP at a cost basis of $11.64 if the put sits in-the-money at expiration. If it doesn’t, you will pocket the entire 36-cent premium.
As of this writing, Tyler Craig held no positions on any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
