You Ask, We Analyze: What's Next For Support.com As It Slams Shorts?

On Thursday evening Benzinga asked its Twitter followers which stocks they’re focusing on for lotto Friday. From the replies, Benzinga selected one ticker for technical analysis.

@EricH2Os and @JeremyS20241935 are both watching Support.com, Inc SPRT. The two traders commented on the wild recent price action of Support.com’s stock and discussed whether the massive rally could be due to a short squeeze or institutions hedging their positions.

Support.com fits the bill of a perfect short squeeze candidate:

• Low Float: Support.com has a tiny float of just 9.3 million shares.
• Strangely High Ownership: 90.08% of Support.com’s float is held by insiders and institutions with insiders owning 37.77% and institutions 52.31%.
• High Short Interest: Of Support.com’s tiny float 6.18 million, meaning a whopping 67.01%, of the float is held short. The number has increased from 5.13 million in July.
• See Also: What's Going On With Support.com's Stock?

The Support.com Chart: On July 20, Support.com began showing unusual volume and price swings that could cause the stock to fluctuate 40% or more during a single trading session. On Aug. 20, the higher-than-average volume became more consistent and between Aug. 23 and Thursday Support.com skyrocketed 120%.

On Thursday, the stock printed a long bullish candlestick with a longer lower wick than upper wick, which indicated higher prices would come. The lower wick demonstrates when the stock dropped toward the $14.32 level bulls came in and bought the dip. In Friday's premarket, Support.com was surging almost another 146% higher toward the $49 level.

Playing short squeezes can be difficult. If any trader looks back at other stocks that have been epically squeezed, such as GameStop Corporation GME the squeeze is relatively short and the decline that follows is drastic. Eventually, Support.com will have a volume climax and the rally will end with the stock price plummeting. On Thursday over 100 million shares of Support.com traded hands compared to the three-month average of 8.94 million.

The stock’s relative strength index measured at about 87% on Thursday, which puts the stock square inside overbought territory. An RSI of over 70% is a sell signal for technical traders. When Support.com reached an RSI of 86% on July 28 the stock sold off 35% over the following four trading sessions.

Support.com is trading above the eight-day and 21-day exponential moving averages (EMAs) with the eight-day EMA trending above the 21-day, both of which are bullish indicators. The stock is also trading above the 200-day simple moving average which indicates overall support in Support.com is bullish.

• Short-term traders can look to play momentum either to the upside or to the downside. Eventually, there will likely be a volume climax and Support.com’s stock will fall back toward earth. In a short squeeze, it's difficult to determine how high a stock can go and how far it can drop after the shorts have covered.
• Long-term investors who already have a position may want to consider taking profits at some point soon. For new investors, it’s probably best to wait until things settle before purchasing shares.

Photo: Andrea Piacquadio from Pexels