Trade of the Day: Snap Inc Could Soar From This Level

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Shares of Snap Inc (NYSE:SNAP) remain in consolidation mode since their early February rally. Structurally, however, the up-gap move from Feb. 7 remains a bullish underpinning that could soon lead to another leg higher in SNAP stock.

Snap Inc Stock Not a Long-Term Investment, but It’s a Great Trade

Source: Shutterstock

For some perspective and so you know, when I last discussed this stock on Feb. 22 I offered the following while making a bullish case: “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.”

My baseline position remains unchanged from February and thus bullish, but the stock has consolidated further since then, which is to say that we now have some well-defined levels above which a next leg higher could occur.

SNAP Stock Charts


Click to Enlarge

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

On the weekly chart, stretching back to the initial public offering date from early 2017 we see that the post-earnings rally last month left a significant weekly bullish candle behind on the chart. This candle also broke the stock out of a well-defined diagonal line of resistance.

After large moves like this, it is normal and indeed healthy for a stock to consolidate. The question is always for how long and how deeply a stock will correct, which is exactly why on Feb. 22 I said to hold off on chasing the stock higher and wait for a consolidation phase to set in.


Click to Enlarge

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

On the daily chart, we see that a near-term double top of sorts developed in February, which then led the stock to consolidate lower. The stock so far has managed to hold above its medium-term moving averages on the daily chart.

Note also that SNAP stock has been consolidating in a tight range over the past few trading days — marked by the gray box. Thus in my eye a near-term bull trade could be legged into upon a successful daily close above the $18.50 level for a next upside target near $20.

It is entirely possible that a next leg higher for this stock may need an earnings catalyst or some other positive news catalyst to get going again.

Check out Anthony Mirhaydari’s Daily Market Outlook for March 15.

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