The day the music stopped for Spotify Technology (NYSE:SPOT) was long ago. Now and with some support both off and on the price chart building; it’s time for bulls to put the shares on their radar and then see Spotify stock run. Let me explain.
Spotify stock has been anything but music to the ears and wallets of investors in recent months. Since the world’s largest streaming-music platform hit a screeching top in July, just three months after its widely-applauded public debut, SPOT stock crashed 40% and is currently hitting all-time lows.
Blame it on the broader market, jacked-up expectations, a combination of the two or even the always real possibility of competition from the likes of Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) or Alphabet Inc (NASDAQ:GOOGL). And I’m sure there are more reasons for the crash of Spotify stock.
The good news is that, with more than a bit of Spotify’s hype diffused by the correction of SPOT stock, a supportive equity boost courtesy of a deal with new-to-the-market Tencent Music (NYSE:TME) struck back in 2017 and a price chart worthy of seeing SPOT run from here, it’s time for investors to consider buying Spotify stock.
SPOT Stock’s Weekly Chart
Looking at the weekly chart, SPOT stock’s 40% decline since its days as one of Wall Street’s glamorous growth starlets has put the shares into a multi-week, double-bottom pattern. That’s bullish. But what makes this formation a bit more compelling is that Spotify stock is testing the 127% extension level after dropping below its former all-time-low reached back in April, shortly after the debut of SPOT stock.
The reason I see this situation as favorable for today’s investors is the fact that any past buy-and-hold players are so far underwater that they probably don’t care about Spotify stock or they’re likely to have already thrown in the towel, removing much of the potential-overhead pressure on SPOT stock.
Trading Spotify Stock
I recommend that investors who agree with my thesis consider buying SPOT stock if confirmation of a pivot low within the double-bottom pattern appears. I like this strategy because it doesn’t simply involve buying shares that are still falling. Rather, we’re looking to hop on board once a playable low with increased odds for success emerges. That’s a smart approach in this market.
Regarding money management, I’d set an initial stop-loss on any purchased SPOT stock below the pattern low. If things go as planned, taking profits at three times the accepted risk and then re-evaluating the position makes sense.
Alternatively, for bullish investors who want absolute risk control with the potential for outsized profits, using a bull call spread is a good strategy. I’d still wait for confirmation of a playable bottom. If such a bottom seems to form, the April $135 / $150 bull call spread currently priced for $3.85 is one to put on the radar as it provides sufficient time, and is well-positioned to exploit a bullish move in SPOT stock out of the pattern.
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 options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
