Square Stock: Why This Bearish “Falling Knife” Could be Caught
There’s a general belief on Wall Street that to make money, you should follow the herd. When stocks stage strong upward momentum, traders will jump in and join the party. Investors just need to cognizant of when to exit.
The reverse happens with downward momentum; traders will dump shares and run for the exits—sometimes with little regard for the overall picture.
Take the case of former momentum stock Square Inc (NYSE:SQ), which surged to a record $101.15 in October 2018.
Since then, Square stock has unfortunately been caught in the rinse cycle, down by about 43% from its high and hemorrhaging for support. If you followed the herd, you would probably be selling this stock.
I started following SQ stock when it was a struggling startup trading below $10.00 in 2016.
My first contact with the company, however, was way back in 2013, when I made a payment with a Square mobile payment device at a farmer’s market on the west coast.
That experience piqued my interest in Square Inc as a forward-thinking company that understood the importance of mobile payment solutions.
Today, Square Inc is a fast-growing player in the global e-commerce market. Regardless of where you are, as long as there is Wi-Fi connectivity, a merchant can sell you goods and services using Square.
The company has since expanded to offering value-added services, such as loans to merchants and a free “MasterCard”-branded debit card for small businesses.
Why SQ Stock Looks Good, Despite Bearish Technical Picture
The technical picture for Square stock is somewhat of a mess. Its share price plummeted from above $80.00 on August 1 to $67.00 the next day.
The deep selling is referred to as a “falling knife” pattern on the stock chart. It’s a dangerous trend that’s often followed by selling. Square shares have mirrored this pattern lately.
But after plummeting to its current price of about $58.00, SQ stock is technically oversold and could be ripe for a bounce.
Chart courtesy of StockCharts.com
The downside risk for SQ shares is around $52.00. On the upside, the stock could take a run and try to recover the downside trade gap between $70.00 and $80.00.
In my view, the bull case remains for Square Inc. There’s a current flushing-out period after the superlative run-up, but the future looks bright for Square stock.
The fundamental picture remains intact, which should provide a ramp toward higher prices for SQ stock.