Snap Worst Case Off the Table After Bounce – TheTradersWire

Snap Worst Case Off the Table After Bounce

Snap Worst Case Off the Table After Bounce

By Alan Farley | May 18, 2017 — 12:20 PM EDT

Snap, Inc. (SNAP) (formerly know as Snapchat) shocked shareholders last week after missing top and bottom line estimates in its first release as a publically traded company. More importantly, the newly-minted tech giant reported an unexpected deceleration in daily average users, a key metric for social media engagement. Not surprisingly, the bearish news triggered a fierce reaction, dropping the stock 21.5% to an all-time low at $17.59.

Fortunately for bulls, the worst-case scenario has come off the table with constructive price action since that ugly session, buoyed by reports that hedge funds used the decline to increase their long positions. Of course, it takes more than dip buyers to build a sustained uptrend after a technical breakdown, but recent developments mark a good first step toward a longer-term recovery.

SNAP Daily Chart (March-May 2017)

SNAP

The stock came public at $24 (red line) on March 2, holding up well in its first trading day and then posting an all-time high at $29.44 in the following session. Aggressive sellers then took control in a wide range decline that broke the IPO opening print on day four. That marked a significant technical event because the level signifies major support on pullbacks and major resistance on bounces.

Selling pressure eased in the upper teens nearly two weeks later, giving way to a healthy bounce that stalled at new resistance at the opening print, ahead of a dull contracting pattern that settled near $23 ahead of last week’s earnings release. The bad news triggered a 5-point down gap trapping all shareholders in losing positions because it immediately posted an all-time low at $17.59.

However, the decline ended that ugly session relatively close to the day’s opening print and traded higher the following morning, setting the stage for a recovery wave that stalled earlier this week. The bounce ended at the green trend line of rising lows broken after earnings, signaling new resistance just above $20, ahead of a minor pullback during the broad mid-week selloff.

A Fibonacci grid stretched across 2-month price action highlights major technical levels but could be deceptive because we don’t know if last week’s low will mark the final swing low. The IPO placement at the 50% retracement could be instructive, with three failed bounces at that level giving order to the scattering of price bars. It also suggests that a breakout above $24 will set off major buying signals that predict a quick rally into the historic high near $30.

SNAP 60-Minute Chart (April 24–May 18)

SNAP

The May 10 release triggered a vertical decline that started within a few cents of resistance at the IPO print and carried more than 6-points. It bottomed out in the first hour on May 11 ahead of a recovery wave that stalled at the 50% retracement and alignment between the 50- and 200-bar EMAs. Two subsequent tests at that resistance level failed to yield a breakout, but price action has been constructive, holding close to that level rather than yielding to lower prices.

The stock has also been glued to round number 20 during options expiration week, which may be generating support that vanishes once this monthly exercise is over on Monday May 22. Mark that date on your calendar because price action out of the gate could signal short-term direction, with a breakout that heads into the .618 Fibonacci retracement level at $21.50 or rolls over into a test at the downtrend low in the upper teens.

The Bottom Line

Snap is trading above $20 after hitting an all-time low at $17.59 after last week’s poorly received earnings report. A rollover at this level needs to hold in the vicinity of the March low at $18.90 to build a secondary recovery wave that fills the big gap and bring resistance at $24 into play.
Published at Thu, 18 May 2017 16:20:00 +0000

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