Why Snap Stock Must Hold This Key Level To Avoid Free Fall

Snap Inc SNAP was trading mostly flat on Tuesday morning after opening slightly higher but being unable to bust up through Monday’s high-of-day. The social networking app company has been trading in a fairly consistent downtrend since suffering a bearish reaction to its third-quarter earnings beat.

On Monday, Chief Business Officer Jeremi Gorman sold a total of 51,425 shares for proceeds that totaled $2,286,615.87. When an insider sells off part or all of their position it can be a red flag for investors because it can signal the person doesn’t believe the stock will rise, although there can be a number of personal reasons an executive decides to sell their shares.

On Dec. 15, JP Morgan Chase & Co JPM maintained its Overweight rating on Snap and lowered its price target from $73 to $65.

If Snap could rebound up to the $65 mark it would be a gift to bullish investors because it would represent a 45% increase over the current share price. Although Snap has a lot of work to do before ever reaching that level, there are bullish signs on the chart that a reversal to the upside may be in the cards.

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The Snap Chart: On Friday and Monday, Snap tested a support level near the $43.26 level and bounced, which created a bullish double bottom pattern on the daily chart. On Tuesday, the stock attempted to react to the pattern but the general markets were showing indecision with the SPDR S&P 500 ETF Trust SPY trading flat to its opening price.

Tuesday’s price action as of late morning had Snap printing an inside bar, which indicates a period of consolidation. The stock also had lower-than-average volume indicating there isn’t a high level of interest in the stock at the present time.

Bulls may feel cautious that Snap could be settling into a bear flag pattern, with the pole formed between Dec. 9 and Dec. 17 and the flags over the trading days that have followed. If Snap falls below its closest lower support level on higher-than-average volume on lower timeframes, traders can feel confident the pattern was recognized.

Snap is trading below the eight-day and 21-day exponential moving averages (EMAs) with the eight-day EMA trending below the 21-day, both of which are bearish indicators. The stock is also trading below the 50-day simple moving average, which indicates longer-term sentiment is bearish.

• Bulls want to see big bullish volume come in and break Snap up over Monday’s high-of-day price and for momentum to push the stock up over the eight-day EMA, which would negate the possible bear flag. Snap has resistance above at $47.92 and $50.96.
• Bears want to see big bearish volume come in and drop Snap down through the bottom of the flag formation. Below the area there is some support at $39.96 and $37.35, but if Snap were to fall below the levels, it could free-fall toward $30.

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Photo: Thought Catalog via Unsplash