Remember when Wall Street fell out of love with Square (NYSE:SQ)? Thankfully that’s in the rear-view mirror now. Investors are flocking to SQ stock at any chance they get.
Don’t believe me? Shares have recovered to their pre-correction point and are threatening a major breakout. If the bulls can break through $84 and then $87 they can try to set new highs. This is exciting, but it’s time to discuss timing — especially in regards to the current macroeconomic situation.
Unlike Visa (NYSE:V) and MasterCard (NYSE:MA), Square stock has not yet set a new high. Although that’s not a complete deal breaker, it is important to note the descending lower-high trend that has been ongoing for two years.
I will share some good news here so I can rebuild reader rapport. One good outcome of the coronavirus is that the crisis forced the whole world to embrace online transactions. More people resorted to using online shopping and banking tools than ever before — because they had no choice. These are habits that are likely to stick.
Fintech companies like Square, PayPal (NASDAQ:PYPL), Visa and MasterCard are the leading transactors, so they will benefit from this for at least 10 years. Every significant dip in these stocks should be an opportunity to buy more.
SQ Stock Fans Have Reasons to Be Cautious
This is where I may start to upset a few readers, but stick with me. The last time I wrote about SQ stock it was a bullish note and the stock rallied over 40%. But here, I would rather sit out the next few weeks to see where the market wants to go. There is so much uncertainty, and shares are no longer at a dip.
The so-called “fear gauge” CBOE Volatility Index (VIX) is almost three times its average value, so there are reasons to worry. This amounts to potentially reckless behavior on Wall Street. I don’t want to be another analyst comparing this to the dot-com bubble, but if it squawks like a duck it’s probably one.
This is not the same as me proposing to short the company — Square definitely has a rosy future. Instead, I am warning investors that caution is important here until we determine the full effects of long-lasting quarantine. The White House has a massive incentive to keep the feel-good drugs coming until November, so while you may miss out on a few bucks, you’ll be prepared for the band-aid to come off.
I would much prefer that outcome.
The Short-Term Lines of Opportunity
I can get deep in the weeds on the technical aspects of the Square chart, or I can state it simply. At these altitudes it is best to either buy the dip closer to $65, or buy the breakout above $85. Anticipating either means putting money at risk without a strategy for the short term.
I am a fan of the fintech industry, including SQ stock. But I would rather sit the next few weeks out until I get more clarity on the real economy. There is nothing wrong in missing upside profits for the sake of caution. Doing the right thing is almost never perfect, but it needs to be done anyway.
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.
