Spotify Stock Gaps Up Above This Key Indicator: What's Going On?

News that Spotify Technology S.A. SPOT will reduce its workforce by 6% gave institutions a reason to gap up about 4.5% on Monday to regain the 200-day simple moving average (SMA) as support.

The 200-day SMA is a heavy level of both support (when a stock is falling), and a strong area of resistance (when a stock is rising). It’s rare that a stock will fall below or rise above the 200-day on the first attempt during regular trading hours, which means the algorithms will sometimes gap a stock above or below the level in the aftermarket or premarket.

With several big-tech players announcing layoffs, traders are now bullish with the hope that these companies will be able to reduce enough spending to continue showing growth.

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Spotify employed about 9,800 people as of the end of the third quarter. A 6% workforce layoff means about 590 employees will lose their jobs.

Although Spotify is likely to retrace to at least backtest the 200-day SMA as support over the coming days, the stock is trading in a strong uptrend on the daily chart.

The Spotify Chart: The Stockholm-based company has been trading in an uptrend since Dec. 20, when the stock printed a bullish double-bottom pattern near $72. Spotify’s most recent higher low was formed on Jan. 12 at $88.41 and the most recent confirmed higher high was printed at the $93.28 mark the day prior.

• On Monday, Spotify was beginning to show signs that the next higher high may be occurring, because the stock was looking to print a doji candlestick. When a doji candlestick is found at the top of an uptrend, it can indicate a reversal to the downside is on the horizon.
• If Spotify retraces lower on Tuesday or Wednesday, traders and investors can watch to see if the stock forms a bullish reversal candlestick, such as a doji or hammer candlestick, near the 200-day SMA, which could indicate the next higher low has occurred. If the stock is able to remain above the 200-day for a period of time, the 50-day SMA will eventually cross above the 200-day, which would cause a golden cross to form.
• If big bearish volume comes in and drops Spotify down below the $89 mark, the uptrend will be negated and a downtrend could form.
• Spotify has resistance above at $102.19 and $109.81 and support below at $91.99 and $85.99.