Technical Analysis: Bear Market in Snapchat Stock Has Met Its Demise

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SNAP Stock: Potential for a Bullish Trend

I have the inclination to believe that the door has swung wide open, and an opportunity for a bull market in Snap Inc (NYSE:SNAP) stock is now upon us. This is no way a typo, and, given the stock’s prior performance, I can see why some may balk at this statement.

I have the luxury of boasting because I stood out on a limb in August and proclaimed that I had reason to believe that Snapchat was setting the stage for higher stock prices, which was the actual title of my publication on the subject. Call it intuition or just plain luck, but right after earnings were announced, SNAP stock put in a bottom and has been trending higher ever since.

In reality, it wasn’t intuition or blind luck. My bullish inclination toward this investment was created by analyzing the price action on the company’s stock chart. This method of analysis is called technical analysis, and I have been employing it to generate views on potential investments for nearly two decades.

Recent developments on the Snapchat stock chart are suggesting that the bearish trend that has caused so much angst for investors has finally concluded.

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These developments are highlighted on the following chart.

Chart courtesy of StockCharts.com

This SNAP stock chart highlights a bearish trend that began almost instantly after it started trading on a public market. This bearish trend, and others like it, are identified by the progressive move toward lower prices, which is characterized by a series of lower highs and lower lows.

This series of lower highs and lower lows is the quintessential characteristic that defines a bearish trend, and it can easily be captured on the chart using a simple downtrend line. This downtrend line is created by connecting the series of lower highs that define this bearish trend.

Since inception, the trend line has acted like a level of price resistance, and all previous attempts to move beyond it were thwarted. This all changed on October 11, when Snapchat stock finally gathered enough strength to break above it. This break above resistance is suggesting that the trend has finally concluded, and it opens up the door for Snapchat to transition into a bullish trend.

Much like the bearish trend, a bullish trend requires a series of higher highs and higher lows. To establish this trend, there is still one obstacle that needs to be overcome. This obstacle is highlighted on the following stock chart.

Chart courtesy of StockCharts.com

The obstacle I am referring to is the subscription price, which only a select few were privileged enough to participate in. The subscription price prior to the initial public offering (IPO) was $17.00.

The subscription price is significant on many levels; a testament to this statement is visible just by looking at the price action on the stock chart. In July, after this price level was breached, the following five weeks were inundated with selling pressure. At this moment, this level is acting like a line in the sand. In order for a bullish trend to develop, Snapchat stock needs trade above this price point on a sustained basis.

This level is currently being tested, and perhaps this level will not be broken on the first attempt. I have the inclination, however, to believe—based on the roaring bull market in equities that is in development—that this level will fall sooner, rather than later. Once this feat is accomplished, higher stock prices will prevail, and perhaps a test of the all-time high will be in order.

Analyst Take: 

Snapchat stock has broken above a very influential metric that was defining the bearish trend. Accomplishing this feat suggests that the bearish trend has run its course, and it opens up the door for a bullish trend to develop. There is one obstacle at $17.00 that stands in the way of a bullish trend, and it is currently being tested. A sustained move above $17.00 would be indicative of a bullish trend that is in development.