After struggling badly in 2018, Snap (NYSE:SNAP) has been on a great run this year. Unlike the last three prior earnings reports, Wall Street loved the results they saw in the one management just delivered earlier this month.
Snap stock is soaring again Monday this after being up 76% year-to-date and 90% off the December lows. As it was the case on the way down, not all the credit goes to SNAP as a company. Even though the stock did outperform the indices, the stock market, in general, is also on a monster rally. We haven’t had a down week yet in 2019. The overall sentiment is much improved from last year.
The SNAP bulls have done great of late but they have a lot more work to do from here. This is to say that most of the easy money is done and from here, the onus is on management to earn more stock upside. This is not a sure thing for the long-term, but it is a trading vehicle.
Yes, the rally is long in the tooth, but there is plenty of room to make up. It is still more than 60% off the highs of its March 2017 initial public offering.
Fundamentally, the experts recently gave Snap management a ton of credit about righting the ship. I am still skeptical about that and it may be more of a case of a relief rally that things weren’t worse. Saying that it’s not that bad is hardly a reason to chase a stock for the long-term. SNAP is supposed to be a growth stock but that still remains more theory than fact.
Before you label me a hater, my point doesn’t go against the company efforts or its prospects. My goal is to evaluate the rally status and find proper entry points. In fact, my last Snap stock trade was bullish, and I have never shorted it.
Having said that, Snap is a momentum stock, so it moves fast and doesn’t leave easy entry points. On its way down from grace, it fell into an abyss and most experts wanted none of it. Now they are buying it hand over fist in what seems like a reckless matter.
Most analysts rate SNAP as a buy and it is now trading above their average price range. This makes me nervous because it is starting to stick out as an outlier from that perspective and highlights the fact that is not cheap. Fundamentally, Snap has its work cut out for it. It faces fierce competition, most publicly from Facebook (NASDAQ:FB), so there’s plenty to fret.
Investors who believe in SNAP for the long-term need not worry about the short-term levels for as long as their thesis remains viable. To me, and since I am not a strong believer in Snap’s long-term, this is a trading vehicle. So I rely on the technical patterns in the chart to trade it. My opinion of Snap’s prospects almost does not matter.
After a run this big, there are clues for what are the next important levels. If I am long Snap stock, I stay long as long as it remains above $8.70. This is the first important level to hold. Otherwise, the gap below $8 per share becomes a short-term magnet. On Monday, SNAP stock is near $10 per share. This is going to be interesting to watch how the bears deal with it.
Back in September of last year, this was where the stock fell apart so this remains a pivot point. Those are usually resistance since it is likely that the bulls and bears want to fight it out again. If I am looking for an entry point, I’d wait out the outcome of said battle.
Overall, the stock is still in a descending channel with lower highs but it may have finished setting lower lows. But the bulls have yet to snap out of the trend and therein lies even more potential once they do.
Meanwhile, there is an even more important pivot level that is more urgent around $11.30 per share.
This has been a big area of interest since August 2017. My gut says that if I am looking for a long-term entry into SNAP, I’d better wait out these exuberant candles for now. This is knowing that I could have missed the trade altogether and that also would be okay.
This year, the equity markets have not had a bad week yet, so if they continue then so will SNAP chart. But that also raises the odds of a dip soon. This is not reason enough to short it but it definitely gives me pause for now. FOMO is not a reason to chase blindly.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
