SQ Stock: The Trend Is Your Friend
I am bullish on Square Inc (NYSE:SQ) stock, and this view was first established on August 18, 2016, which was shortly after I first stumbled upon this name when I was doing my daily scan of potential investments. This scan involves meeting a certain technical requirement.
I was so enamored with my findings that I published a report on “Square Inc: SQ Stock is Sending a Flashing Buy Signal,” and, at the time that report was written, Square stock was trading at $11.75.
Today, Square is trading at $17.04, which represents a 45% return, so perhaps the tools I use to analyze potential investments and create investment strategies have some merit.
For anyone who isn’t familiar with my work, I employ the art of technical analysis to analyze potential investments. This style of investment analysis is based on the notion that historical price and volume data can be used to forecast the direction of future prices.
This style may sound silly to some, but I have been using it for nearly two decades, and I have had great success in doing so. I attribute my success to this style’s ability to define my levels of risk, which has also instilled a disciplined approach to my strategies. This has effectively minimized any emotional biases that could taint my investment decisions.
The price action that followed my initial report about this company has been phenomenal, and this bullish price action is illustrated on the SQ stock chart below.
Chart courtesy of StockCharts.com
The phenomenal price action that I am referring to has been characterized by precise constructive price action.
Constructive price action contains impulse waves that serve to advance the price, and consolidation waves that serve to alleviate overbought conditions and set up the next advancing impulse wave. This wave structure is illustrated on the above chart by impulse waves, highlighted in green, and consolidation waves, highlighted in purple. This alternating wave structure is essential in producing a trend that is sustainable.
The precision of these waves is hands-down mind-boggling. Each impulse wave that has followed a consolidation wave has been $4.00 in length. This is consistent with the theory surrounding these waves, but I have yet to come across an instance that was so pristine. The theory states that impulse waves that are separated by consolidation waves tend to mirror each other in terms of length and, as a result, the consolidation wave is viewed as a midpoint.
The first impulse wave began off the June 2016 lows around $8.50, and reached a peak at $12.50, before a consolidation ensued. The second impulse wave began in November 2016, at $11.00, and peaked at $15.50, before another consolidation wave ensued. The third impulse wave began in February 2017, at $14.00, and reached its current peak of $18.00 This price action is just phenomenal, and I can only assume that a completion of the next consolidation wave will lead another impulse wave that is $4.00 in length.
The time it takes to create and complete a consolidation wave is getting smaller, so this could be indicating that the trend is beginning to accelerate. The recent impulse wave broke above a longstanding all-time high, and this serves to also suggest that much higher prices are now on the horizon.
The following Square stock chart illustrates the predominant trend that is now supporting price.
Chart courtesy of StockCharts.com
Since the lows in SQ stock were created in June 2016, a trend of higher highs and higher lows has been established. The sequence is the quintessential characteristic that defines a bullish trend. This bullish trend is easily defined using a simple uptrend line. This uptrend line is created by connecting the valleys on the Square price chart.
The bullish trend was confirmed when the moving average convergence/divergence (MACD) indicator, located in the lower panel of the above stock chart, crossed in a bullish manner. MACD is simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum.
As soon as the bullish cross occurred in August 2016, it served to suggest that bullish momentum was propelling the price of Square shares, and therefore, the pattern was geared toward higher prices. This indicator has remained in bullish alignment through the duration of this run to the upside, and it remains so.
As long as the MACD indicator is bullish and SQ stock is trading above the uptrend line, I can only assume that higher prices will prevail. Throw in the notion that Square Inc stock is now trading at a new all-time high, and this opens the door to much higher prices because there is no overhead price resistance to contain the stock.
Bottom Line on Square Stock
I first became bullish on Square stock in August 2016, because indicators on the SQ stock chart supported the notion that a trend reversal towards higher prices was in play. Since that fateful day, the bullish indicators have continued to mount, and as a result, I firmly remain bullish on this investment. I will remain bullish until these indicators suggest that another view is warranted.