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Trade of the Day: Snap Inc Stock May Finally Be Taken Seriously

Shares of social media platform Snap Inc (NYSE:SNAP) are higher by close to 30% for the year to date, all thanks to a sharp post-earnings pop on Feb. 7. Although SNAP stock has been consolidating those gains over the past couple of weeks, the bullish mark left behind on the chart is notable and could lead to significantly higher prices later this year.

SNAP Stock: Snap Inc Stock May Finally Be Taken Seriously

Source: Shutterstock

Despite a monstrous hype around its initial public offering in March 2017, SNAP stock delivered nothing but pain for its investors for the ensuing 11 months. The Feb. 7 rally not only left a big positive mark on the charts, as we will see below, but the earnings report and outlook also looks to have brought in some trust from a more institutional base of investors.

From where I sit, all else being equal, the Feb. 7 rally in SNAP stock could be similar to what shares of Facebook Inc (NASDAQ:FB) did on July 25, 2013. At the time Facebook reported earnings and it was the quarter that brought institutional investors to the table. The stock has never looked back since.

While it of course remains to be seen what SNAP stock does from here on forward, the price action so far is similar to what FB stock saw at the time.

SNAP Stock Charts

Click to Enlarge

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

On the weekly chart that stretches back to the 2017 initial public offering date, we see that once SNAP stock reached its lows in August 2017, it settled into a sideways basing/trading range. This period also served to further shake out any remaining weak hands in the stock.

The Feb. 7 rally not only left its mark on a daily basis but also closed the stock above diagonal and horizontal resistance (black lines) all in one fell swoop on a weekly closing basis. SNAP stock has yet to see follow-through buying from that week, but so far so good.

Click to Enlarge

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart, we see the up-gap from Feb. 7 a little better. By classic technical analysis definitions the rally that day was a classic so-called “breakaway gap,” which on average has very bullish implications.

From here, while SNAP stock could spend more time consolidating the Feb. 7 rally, legging into some partial intermediate term bullish positions makes sense from where I sit. I do think the stock needs some breathing room, so this is not a trade to do in large size or for immediate gratification, but rather one that will take some time to play out for the stock to potentially rise into the mid to high $20s in coming months/quarters.

Check out Anthony Mirhaydari’s Daily Market Outlook for Feb. 22.

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