Snapchat Stock Breaks Out and a Bull Market Is Born

Snapchat Stock
iStock.com/Wachiwit

SNAP Stock: The Path Is Now Geared Toward Higher Stock Prices

In a sea of red, when the market is inundated with selling pressure, it is always nice to see stocks that are bucking the trend and making substantial moves toward higher prices. I can tell you that in this current market environment, that list is very small. To my delight, Snap Inc (NYSE:SNAP) stock just happens to be on it.

On February 7, Snapchat stock reported earnings that shocked the street as they reported numbers that were beyond expectations. This caused SNAP stock to surge higher, closing up by 47.58% on the day. I guess it’s only fair that Snapchat stock performs so well in such a volatile environment since, for much of the bull market, This stock was bucking the bullish trend and selling off, creating much of an eyesore.

I can honestly say that this move toward higher prices was not a complete surprise, and I have been waiting for such a move to develop since October of last year, where I outlined that there were certain technical developments on the Snap stock chart that implied that a bottom had finally been put in and that the worst was over.

These technical developments are highlighted on the following stock chart.

Snapchat Price Chart

Chart courtesy of StockCharts.com

This stock chart illustrates that aside from the first two trading days, SNAP stock has been in bearish trend characterized by a series of lower lows and lower highs, which is what I always describe as the quintessential characteristic that describes all bearish trends.

This bearish trend was responsible for pulverizing the stock, essentially erasing 57.20% in value from peak to trough. The downtrend line (highlighted in blue) defines this bearish trend, and it was created by connecting the series of lower highs.

Since the beginning, the downtrend line acted like a level of price resistance and thwarted all attempts to move beyond it. On October 11, 2017, the downtrend line met its demise when Snapchat stock was finally able to break above it. This broken downtrend line correctly suggested that the bearish trend had finally come to end, which opened up the possibility for the development of a bullish trend.

In order to establish a bullish trend, a series of higher highs and higher lows is required. I stipulated that there was one last level of resistance that needed to be overcome in order to create the quintessential characteristic that defines all bullish trends.

This last level of resistance I was referring to was the initial public offering (IPO) subscription price at $17.00, which only a few privileged participants were lucky enough to receive.

This level of resistance is highlighted on the following SNAP stock chart.

Snap Stock Chart

Chart courtesy of StockCharts.com

The level highlighted at $17.00 is the IPO subscription price, and as soon as the downtrend line was broken, this level of resistance was tested and the first attempt was thwarted. There was a second attempt at this level in December, but that attempt failed to even reach this price point before the share price started to correct.

The earnings announcement was the catalyst that finally sent the share price surging through this level of resistance and it was accomplished in true bullish fashion by gapping right above it. Gapping above a significant level of price resistance is called a breakaway gap. These gaps rarely get filled and almost always indicate that a new trend has begun.

With the new bullish trend in development, I would not be surprised if the $17.00 IPO subscription price was tested from above. Returning to test a previous level of resistance is a very common occurrence, and it serves to reaffirm that the break above resistance was legitimate while simultaneously establishing this price point as a new level of price support. Whether such an event will occur remains to be seen, but I firmly believe that a new bull market in Snapchat stock has just begun and the previous all-time high of $29.44 is the next viable price objective.

Analyst Take

Snapchat stock has finally broken above a key level of price resistance that resided at $17.00, which is currently suggesting and reaffirming my beliefs that a new bull market in SNAP stock is now in development.