Square Inc: This Is Why SQ Stock Has Only Begun to Run

SQ StockSQ Stock: Bullish Tailwinds

I have been watching and anticipating a bullish breakout in Square Inc (NYSE:SQ) stock for some time, and that event is no longer speculation, as SQ stock broke out of a technical pattern that has significant bullish implications.

These bullish implications are based on the the body of knowledge I use to create trading strategies. I have a background in fundamental analysis, but I have found that, when I am trying to create wealth by trading, the only method that has served me well is technical analysis.

This method is timely, because the signals generated are dependent on stock prices. The price allows my strategies to remain objective and free from emotion. This is possible because I am able to define my entry and exit points prior to initiating trades. This is the most important aspect in trading, as it effectively manages my risk.

The following SQ stock illustrates the pattern I was anticipating would break out.


Chart courtesy of StockCharts.com

The price action of the July lows can only be interpreted as bullish. An impulse wave propelled SQ stock higher, and a consolidation wave quickly followed. Bullish trends are characterized by such waves as they continue to alternate between one and another. A consolidation wave is where the price reaches a temporary level of equilibrium, and any overbought conditions are alleviated. Consolidation waves are essential in keeping trends healthy, and form the groundwork for the next impulse wave to develop.

On November 2, 2016, SQ stock broke out of the consolidation wave that is highlighted on the chart above as a pennant, and this opened the door for an impulse wave to develop. The price has yet to follow though, as the highs set in August have yet to be overtaken. It is not uncommon for the price to trade back and test a breakout. SQ stock can trade back to $11.25, and the bullish implications from the breakout will still be intact.

The next impulse wave has a target price of $15.00 for SQ stock, as it is very common for impulse waves to match in length and duration. The first impulse wave was $4.25 in length, and it was this range that was used to create this price objective.

The following SQ stock chart illustrates other bullish signals that support the development of an impulse wave.


Chart courtesy of StockCharts.com

The following technical signals supported and confirmed the current breakout of the consolidation pennant.

In September 2016, Square stock generated a golden cross. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). This signal is used to confirm that a bull market is on the horizon. I have found that it is always wise to trade with this signal and, as result, I will only trade bullish setups when this signal is engaged.

On November 2, 2016, when SQ stock completed the consolidation wave, the on-balance volume (OBV) indicator confirmed the bullish move higher. This indicator uses volume to compute buying and selling pressure. It is produced by cumulatively adding volume on up days and subtracting volume on down days.

The data is then plotted on a chart. This indicator made a new high, as the price broke out of the pennant, indicating that buying pressure is supporting a move higher. OBV is both a leading and coincident indicator, and the new high indicates that SQ stock has an above-average probability of moving higher.

Bottom Line on SQ Stock

I am bullish on Square stock, and my view will remain bullish as long as the price actions remains constructive and SQ stock is trading above $11.00.