There was a time when it was hip to be long on Square (NYSE:SQ), but it looks as if that time may have passed. Following a mixed earnings report and a decisively bearish reaction, the next meaningful price move for Square stock is subject to terms and conditions still pending on the price chart.
Investors who claimed Square had gotten ahead of itself can say they saw it coming. Trading roughly 20% above its prior quarter’s earnings reaction and sporting an aggressively-priced earnings multiple, this past Friday shares of Square crumbled by roughly 14% following mixed results for its latest corporate confessional.
By the numbers, Square beat consensus profit views by 5 cents on earnings of 21 cents per share in Q2. On paper, revenue growth continued to impress as well. SQ stock’s sales boasted growth of more than 46% year-over-year for its second quarter.
Square’s top-line of $563 million also managed to come in narrowly above forecasts, while its Cash App hit an impressive $135 million in quarterly revenue. But it was the digital-payment upstart’s profit warning for its upcoming third quarter which caught investors’ scorn in SQ stock.
Management’s announcement to invest more heavily in marketing in front of the important Q4 holiday season unraveled shares. And whether you’re agreeable or not with the reason behind the madness, respecting the price chart in SQ stock and a much more questionable situation is immutable.
Square Stock Weekly Chart
On the surface, Friday’s response by investors seems like an overreaction to proactive intentions by Square’s management, but broken patterns like this failed “W” formation in SQ stock are important to respect. As much, the advice is not to be too quick in giving shares the benefit of the doubt.
In the here and now and referencing the provided weekly chart, the next logical support area for SQ stock is $62.50 – $64 as a trendline and 62% retracement level are challenged. A test of this price zone could set the stage for a bullish higher low pattern to develop. That’s bullish as well. Coupled with an oversold daily chart, I’d anticipate any testing of this type will result in an upside reaction.
But will a bounce in SQ stock turn into something more meaningful?
The Bottom Line on Square Stock
For anyone other than short-term traders, I’d wait for a fully-formed weekly low to develop before making any purchase commitments.
Given the breakdown of Square’s W pattern, shares are at strong risk of revisiting last December’s low near $50 if this key support zone fails to hold. For traders comfortable shorting stocks, while shares are on the radar for purchase opportunities today, another failure could make Square a short in the weeks ahead.
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.
