Snap (NYSE:SNAP) stock came into its earnings event, up an astounding 117% year-to-date. But that’s a misleading metric since it had fallen a ton before it bottomed on Christmas. Since then, the stock rallied more than 150% from low to high. The strength continues this morning after the earnings.
SNAP stock has been a controversial trade. It came out of the block with a powerful IPO, but then it fell hard from grace. From top to bottom it fell 80% and now it’s clawing its way about half back. This makes the current zone potential resistance, but therein also lies the technical opportunity.
There is now a confluence of many technical patterns where if the bulls can push through they could break through the resistance and overshoot higher for a rally that could be 30% from here. Mainly it’s the opportunity to snap out — pun intended — of the descending channel of lower highs and lower lows.
I am not a perma-bull on SNAP stock. On April 9, I wrote about selling the stock while it rebuilds its footing. That was not a bearish statement against the company’s prospects but rather an assessment of the price action itself. So was I wrong then? No, SNAP stock fell about 8%.
Now the story changes. Since the earnings uncertainty is out of the way, maybe the bulls can muster up enough energy to snap out of the descending channel that has plagued the stock since its IPO.
Last night, SNAP management reported earnings and traders spiked it on the headline. Snap Inc beat on the top and bottom lines and grew its user metrics. It is important to note that they grew revenues 39%. This is an acceleration from the prior 36%, so the stock is earning back its classification of being a growth stock.
What to Expect From SNAP Stock
Although it delivered a smaller loss, it guided lower earnings going forward. But since they are accelerating the sales line, it’s okay. Growth companies need to spend more to deliver the results. SNAP added 4 million daily active users when the street expected only one million. For now, I can overlook the tepid earnings guidance as long as they keep growing their sales.
This report also shows that they are improving advertising tools to contribute to growth. So Snap Inc is shifting its focus more toward advertising than just simple user metrics. We saw Twitter (NYSE:TWTR) also spike on a similar message from its earnings this week.
SNAP also noted their foray into the Android platform and the Discover premium content. Those will help maintain the momentum for the next few critical months. The reaction from the last earnings was an unbelievable 20% spike so it will take a lot of this time to impress the fans. Nevertheless, it sets a firm footing that should be a support zone below to help the bulls concentrate on the upside potential above.
The bottom line, SNAP stock here has the support of management success to chase the technical opportunities that are just above current levels. If the bulls can breakout of the descending trend lines of lower highs, they can target $17 per share. There will be resistance between $13 and $14.30 per share, but that is a battle worth fighting if you are a bull.
Snap management is making the right moves, so there is the opportunity to chase a technical breakout as long as buyers don’t quit too soon.
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.
