Price Pattern Suggests That SQ Stock Has Only Reached a Midpoint
The panic selling that began in late January has finally subsided. The Volatility Index, also known as the Fear Index, has come down from its feverish highs, and cooler heads are prevailing again. As a result, The market indices have regained their footing and they are once again staging an advance.
At the moment, I feel quite vindicated because I was adamant in proclaiming that this sell-off was a correction that was needed in order to unwind an overbought condition and restore health to a bullish trend. The fact that the market has found its its footing is a scenario I foresaw and, although we may not be completely out of the woods yet, I believe that higher index values will continue to prevail.
Based on this notion that a bull market in the indices is still in development, I am focusing on Square Inc (NYSE:SQ) stock. The reason I am focusing on Square stock is that a particular technical price pattern is currently in development on the stock chart. When this pattern is completed, it will suggest that much higher SQ stock prices are likely to follow.
This technical price pattern is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
The technical price pattern currently in development on the SQ stock chart is a symmetrical triangle.
Symmetrical triangle patterns are characterized by price action that contains a sequence of higher lows and lower highs. Identifying these patterns is quite easy and it involves using two converging trend lines that are created by connecting the sequence of lower highs and connecting the sequence of higher lows. These two converging trend lines identify the pattern and the respective levels of price support and price resistance.
The stock price will oscillate between these two trend lines for as long as time permits, and the pattern will be resolved when the stock price either breaks above resistance or falls below support. When I say “as long as time permits,” there is caveat; this pattern cannot spool forever, because of the converging nature of the trend lines. These converging trend lines cause the range between support and resistance to contract and, therefore, the stock prices will exit it eventually.
This convergence of space also causes energy to build within the pattern in anticipation of a breakout. As a result, triangles are very powerful price patterns, which is why I am particularly fond of them.
I am currently watching this pattern because I have the inclination to believe that this pattern will resolve itself in a bullish manner, suggesting that higher SQ stock prices will follow.
My expectation of higher Square stock prices is based on the bullish trend that preceded this pattern. This bullish trend is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
The bullish trend has been annotated as two distinct waves in order to depict how the bullish trend has been constructive in nature.
The wave highlighted in green is an impulse wave, and these waves are advancing in nature. Impulse waves define the period in a bullish trend when a stock makes a sustained and uninterrupted move toward higher prices.
The wave highlighted in purple is a consolidation wave, and these waves are corrective in nature. Consolidation waves define the period in a bullish trend when the stock price corrects and refrains from staging an advance.
In a bullish trend, corrective price action serves to unwind overbought conditions that were created during the impulse wave that preceded it, which restores health to a bullish trend. This creates the necessary conditions for an impulse wave to follow.
The symmetrical triangle highlighted earlier doubles as a consolidation wave, and a bullish resolution of this pattern would suggest that another impulse wave is likely to follow.
Consolidation waves act like midpoints in a bullish trend and, therefore, once this consolidation wave is complete, an impulse will follow that will likely mirror the impulse wave that preceded it. If I apply this notion from a linear perspective, It creates a potential price objective of $75.00, suggesting that, if Square stock is destined to continue its advance, much higher SQ stock prices will follow.
A powerful pattern is in development on the Square stock chart, and I have the inclination to believe that this pattern will resolve itself in a bullish manner, which would suggest that much higher SQ stock prices are likely to follow.