Snap (NYSE:SNAP) is having a great year. Those who stuck by it in spite of the headline jitters enjoyed a 143% year-to-date reward. The exciting part is that SNAP stock may not be done as it could still be chasing the $25 per share scenario. But only if management tells a good story soon.
For the past year, the stock market has been whipsawed by geopolitical headlines. The fundamental homework that investors do on company stocks has been rendered at times ineffective. Machine and emotional trading can ruin the best of fundamental setups. Luckily for SNAP it had a few constructive trading opportunities that resulted in nice rallies, especially off the May lows.
SNAP Stock Price Building a Base
On Sept. 24 when it was ready to explode another leg higher, SNAP stock suffered a setback. It failed in a big way and fell 25%. Since then, the $18 per share neckline remains an opportunity for the next few months. But first, SNAP bulls need to hold the Snap stock price at $13.50 per share else they risk losing another dollar from there. Therein lies the opportunity and it is two-fold.
Click to EnlargeFirst, the bulls have support from this zone at the 50% Fibonacci retracement level of the May rally. Second, even if they lose it there is another support extension near $11 per share.
SNAP is inside a wide, well-consolidated area, which should act as solid support as long as there are no new shoes to drop. There is a low-odd risk of a big correction of SNAP stock to fill the gap at $7.30. But not every gap on every chart gets filled, so this alone is not a reason to expect the stock to go there.
Help for SNAP Stock From Wall Street
If the overall stock market is rising, chances are that Snapchat stock will have the opportunity to stabilize and establish the footing it needs here. This will give the bulls enough rest to rebuild momentum so they can get more constructive on the longer-term charts.
Luckily, the usage stats on the Snapchat application are impressive. The financial fundamentals have not yet had the opportunity to grow into them. But that’s the reason people invest in growth stocks. Value is not what investors seek when they buy shares of a stock that is overspending on growth.
The overall opportunity for social media platforms is undeniable. That is why the popularity of Facebook (NASDAQ:FB), Twitter (NYSE:TWTR) and Snapchat is global and unrelenting. Compared to the other two, SNAP management needs to prove itself worthy of the trust investors currently give it.
SNAP stock is expensive as it still loses money and sells at about 17 times its revenues. Facebook and Twitter stocks have 31 and 13 P/E ratios, respectively, and almost half the valuation to sales. Clearly investors in SNAP stock are expecting scenarios that have yet to materialize.
SNAP Management Will Have the Stage Soon
We are in earning season, so management will soon have the opportunity to impress Wall Street with metrics so that investors can rush back into SNAP stock. It will be important what they say going forward because more important than actual results is setting strong expectations.
It is important to note that the last technical breakout was built on a confluence of several time frames. In theory, the neckline area should be forward support. In this case, unless management really blows it, the zone around $12.50 per share should be solid footing for Snapchat bulls to maintain the higher-low ascending trend off of the December correction.
If I own shares of SNAP, I would hold them provided I am OK risking the green weekly candle from June 3. Else I should use options to protect my shares through earnings. If this stock gets hit on the news, unless management completely delivers a disastrous report, it would then be an interesting entry into a bullish trade. There are several entry points lined up on multiple time frames around these levels so there is something for every style of trading. It will depend on investor preference and time commitment.
Bottom line, SNAP stock has multiple opportunities now and in the near future. It is an exciting stock to watch for the next two weeks.
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. Join his live chat room for free here.
