SNAP Stock: This Significant Level of Resistance Will Be Tested
This might be a hard statement to believe, given Snap Inc (NYSE:SNAP) stock’s performance since inception, but, from my perspective, Snapchat stock is actually looking up by making bullish headway.
This is a follow-up to my August 22 publication, “Did Snapchat Stock Just Put in a Bottom?” Since then, the SNAP stock price action has remained constructive. It continues to support the notion that necessary steps are being put into place so a true bottom in the stock can form.
Let me reiterate, I am not saying that an actual bottom is in place, but I am outlining the steps that are required to accomplish this task. So far, I am quite pleased with what has occurred on the Snapchat stock chart.
The following stock chart illustrates the price action, which is suggesting that the pieces are being put into place to suggest that a possible bottom is being forged in the Snapchat share price.
Chart courtesy of StockCharts.com
The price action on the stock chart that is suggesting that a bottom is being put into place is a technical price pattern known as a double bottom reversal. This technical price pattern contains two distinct lows which are separated by a peak in between. Once the stock price closes above the peak that separates the two troughs, that pattern is complete, which indicates that the trend has reversed from bearish to bullish.
The significant price point that completes the double bottom reversal pattern is $14.00. In the middle of August, SNAP stock closed above this level, unleashing the bullish implications suggested by it. The initial price objective of this price pattern is $16.70, and it was obtained by taking the depth of the pattern and extrapolating that value above the peak.
In the days that followed, Snapchat stock hit a high of $15.34 before the price backed off, and it is currently testing the price point that completed the double bottom. Testing a previous level of resistance from above is referred to as a backtest. As long as the stock price remains above $14.00 on a closing basis, it will reaffirm the bullish implications suggested by the completed double bottom reversal pattern.
The price objective that I outlined at $16.70 is a very significant price point because, in order to confirm that a bottom is in, SNAP stock needs to close above this level. The reason I am saying this is that a very important metric that has defined the bear market in Snapchat stock currently resides at this level.
The following Snapchat stock chart illustrates the metric that has defined the bear market in SNAP shares.
Chart courtesy of StockCharts.com
This SNAP stock chart illustrates a bearish trend that began shortly after inception. This bearish trend captures the quintessential characteristic that defines all bearish trends, which is a series of lower lows and lower highs that causes the stock price to move from the upper left to the lower right of the stock chart.
This bearish trend is easily defined by using a simple tool known as a downtrend line. Creating it is just as easy because a downtrend line is created by connecting the peaks on the stock chart. The downtrend line has become a very significant level of price resistance. In order for Snapchat stock to transition from this bearish trend into a bullish one, the stock price needs to break above this downtrend line, which has thwarted all previous attempts at moving beyond it.
The good news is that the objective set out by the double bottom price pattern is set to put this downtrend line to the test. Breaking above it would be a reason to rejoice, because it would suggest that the predominant bearish trend that has punished investors has finally met its match, indicating that a new bull market is in development.
Over the past month, Snapchat stock has done the necessary legwork in order to suggest that a very important metric that has defined the bear market in SNAP stock is going to be put to the test.
Once this level is breached, I will have all the necessary indications to suggest that the bear market in this investment has concluded. That will effectively provide an opportunity for a bullish trend to develop.