It hasn’t been hip to be bullish on Square (NYSE:SQ) the past couple of months. But combine burly long-term growth prospects, a classic correction in Square, the broader market reaffirming it has bulls’ backs — and it’s time to buy SQ stock today. Let me explain.
For investors in risk assets and particularly growth names like SQ stock, it’s been a treacherous few weeks. In fact, a fabled but far from consistent ‘sell in May’ strategy would have helped avoid a loss of about 6.5% in the S&P 500 to nearly 8.5% in the tech-heavy Nasdaq.
Over the same period, SQ stock was pressured and fell by roughly 16.5%. The additional pressure was in large part attributed to Square’s mixed earnings report. The quarterly confessional is one I’d optimistically sum up as good but not good enough for a Street known to be near-sighted at times.
But Friday offered a solid indication a difficult bull market of late driven by trade war fears, may be in the rearview mirror for the major indices and in turn, a name like Square.
Across-the-board strength to finish the week saw the likes of the S&P 500 gain 4.5% for the period after putting in a fresh relative low Monday morning. Moreover, Friday’s solid follow through allowed the five-day period to establish an engulfing pivot low within a still-intact bull market from December’s corrective bear market. And while growth names like Square have been known to march to the beat of their own drummer, it’s hard to deny the market’s own bottoming looks like great news on the price chart for SQ stock bulls.
SQ Stock Weekly Chart
Since March and following what had been a market-leading rally of 60% from December’s ubiquitous bottom, SQ stock managed to lead the market lower with its correction of 28%. Now though, the classic sub 30% correction in Square and so common among growth companies, even in healthier market environments, appears to have finished.
Much like the broader market, Friday’s price action in Square formed a bullish-engulfing candlestick. But given SQ stock’s correction and shares establishing a four-week long double-bottom pattern at the 62% retracement level backed by an oversold stochastics signal, buying a growth stock like Square becomes an even more attractive proposition.
How to Trade SQ Stock
For traders agreeable with this bullish outlook, but given the size of the last week’s fairly large candlestick, I’d suggest a blended stop-loss beneath $64.35 in SQ stock. This exit keeps risk limited to levels which look reasonable enough on and off the price chart, without becoming married to the position. And if we’re correct about a meaningful pattern bottom in Square being in place, the March high near $83 offers an attractive and approachable spot relative to the position’s initial risk for profit-taking.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.