Did Snapchat Stock Just Put in a Bottom?

SNAP Stock
Credit:iStock.com/SteafPong88

SNAP Stock: Setting the Stage to Rally

On August 10, the same day that Snap Inc (NYSE:SNAP) was expected to announce earnings, I released a report that outlined certain developments that were occurring on the SNAP stock chart. These developments were suggesting that a bottom in the company’s stock price was being formed. So when earnings were released later that same day and Snapchat stock dropped by 13% in after-hours trading, you can imagine my concerns and disappointment at the events that had just transpired.

In after-hours trading, when the Snapchat stock price was flirting with an $11.00 handle, I mentioned to a colleague that if I was inclined to jump in on SNAP stock, I would do it here. This of course was hearsay, because it was only a passing thought, but the idea was sound.

Surprisingly, events that followed actually served to vindicate my original views that a bottom was being forged. After an initial sell-off, SNAP stock quickly found its footing, and over the next six days it managed to close above $14.00. $14.00 is a very significant price point because it completes a technical price pattern that suggests a tradable rally has commenced. The pattern that was outlined in the original publication titled “Snapchat Stock Is Setting the Stage for Higher Stock Prices” has changed, but the implications suggested by it have not.

The following Snapchat stock chart illustrates the new price pattern that is suggesting a tradable bottom is now in place.

Snapchat stock chart

Chart courtesy of StockCharts.com

The technical price pattern that was originally viewed as a potential inverse head and shoulders has morphed in a double bottom reversal pattern. A double bottom reversal pattern contains two troughs of roughly equal size that are separated by a peak in between. The pattern is completed when the stock price closes above the peak, at which point the pattern suggests that a bottom is in place and a trend reversal has begun.

The peak currently sits at $14.00, which was the same level of resistance that was identified when it was thought that an inverse head and shoulders was being painted on the stock chart. Regardless of the pattern that is being painted on the stock chart, the ramifications are the exact same.

Also ReadSnap Stock Forecast: How Snap Inc Plans to Grow in 2017

On Friday, August 18, SNAP stock closed the trading day at $14.01, which suggests that a tradable bottom is in, and a rally towards higher prices is now expected.

Before anyone gets too enthusiastic, I must point out that this tradable bottom is just a bear market rally until proven otherwise.

In order for Snapchat stock to transition from its current bearish trend into a bullish one, the stock needs to break above a significant level of price resistance that has continuously contained the price from advancing. The good news is, the completion of the double bottom price pattern is set to put this level of price resistance to a test.

The following Snapchat stock chart illustrates the significant level of price resistance that has defined the bearish trend in the stock.

snap price chart

Chart courtesy of StockCharts.com

This Snap stock chart illustrates a bearish trend that began shortly after this investment began trading openly on a public exchange. This bearish trend captures the quintessential characteristic that defines all bearish trends, which is a series of lower lows and lower highs. This price action creates a bearish stair-step pattern that is best captured using a simple downtrend line.

This downtrend line is created by simply connecting the significant peaks. The line it creates has become a significant level of price resistance that has stopped every attempt at moving beyond it. In order to even suggest that a bull market is in development, Snap stock needs to break above this downtrend line.

The objective set out by the double bottom price pattern is $16.70, and it was created by taking the depth of the pattern and extrapolating that value above the peak, which is $14.00. This objective suggests that the double bottom reversal pattern is setting the wheels in motion to test the significant level of price resistance outlined by the downtrend line. Breaking above it would be quite the feat because it would serve to suggest that the predominant bearish trend had met its demise, and therefore a new bull market is in development.

Analyst Take: 

Snapchat stock has just completed a technical price pattern on its stock chart that is suggesting that a rally is set to ensue. This rally is set to test a very significant level of price resistance that has defined the bear market in SNAP stock. Breaking above this significant level of price resistance would suggest that the bear market in Snapchat has met its demise, and therefore, a bullish outlook would be warranted.