If you’re bullish on Square (NYSE:SQ) and its long-term prospects, there’s good news and bad news off and on the SQ stock price chart worth heeding. Let me explain.
It’s no secret the initial driver for Square stock falling out of favor with investors was the company’s earnings report in early August, which harbored a modestly below expectations third-quarter revenue forecast and announced sale of its Caviar business. And for an often impulsively determined Wall Street, the lack of near-term clarity trumped the longer-term growth narrative.
Appreciatively, for the buy-and-hold Square stock investor it’s been a difficult environment to maintain the faith. After cratering by 23% in August, September’s tally thus far has racked up an additional price drop in SQ stock of 5%. What’s more, after coming on strong in the first quarter of 2019 with shares sprinting to a gain of nearly 50%, SQ is barely hanging on to a positive return this year.
The frustration for Square shareholders has been likely compounded by the broader market which is up 20% after snapping back toward all-time highs after its own brief, but volatile corrective swoon in August. And now SQ stock’s continued weakness is pointing to additional bad and good news for bullish investors in the days and months ahead.
SQ Stock Daily Price Chart
With Wall Street still holding a grudge against Square stock, the latest price action has dismantled a higher low, double-bottom pattern loosely supported by the 62% Fibonacci retracement level. If you were bullish on the bottoming price pattern, and I’ll include myself among that camp, it’s time to recognize the technical failure and remain on the sidelines for the time being.
Near term and backed by a weak-looking stochastics set-up, SQ stock’s bearish price action suggests shares will be heading even lower in the near future. In fact, for investors unconvinced of Square’s longer-term growth prospects, which isn’t entirely without merit either, shorting shares makes sense.
The next logical testing is last year’s December low near $50. A challenge of those levels offers the promise of a minimum return on investment of nearly 15% for an investor shorting SQ stock today. While I’m not bearish and prefer simply monitoring shares for a future purchase, technically I would suggest a blended stop-loss above $63 which looks good for containing losses off and on the price chart.
The good news for SQ stock bulls, if we’re correct about additional downside pressure, the opportunity for much stronger value off and on the price chart is forthcoming. And with December’s low already breaching Square’s lifetime 50% retracement level — a test of 62% support near $44 isn’t out of the question.
Disclosure: Investment accounts under Christopher Tyler’s management do not 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 options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
