Bears May Be Feeling Comfortable, But Here's Why Affirm Will Bounce

Affirm Holdings, Inc AFRM was sliding over 6% lower on Monday after a sharp decline on Friday caused the stock to plunge almost 10% and print a bearish kicker candlestick.

The downturn in Affirm’s stock started on Aug. 17, but the move lower was accelerated the following day when Target Corp TGT, which uses Affirm’s buy now, pay later option, printed worse-than-expected quarterly earnings.

Affirm is expected to print its fourth-quarter earnings after the market close on Thursday. When the financial technology company printed its third-quarter earnings after the close on May 12, the stock rallied 31% the following day.

For the third quarter, Affirm reported a quarterly loss of 19 cents per share on sales of $354.76 million, which beat the consensus estimate for a loss of 54 cents on sales of $344.03 million.

For the fourth quarter, Affirm guided its sales to come in between $345 million and $355 million. Analysts expect the company to print a quarterly loss of 59 cents per share on revenues of $354.8 million.

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The Affirm Chart: When Affirm plunged on Friday, the stock negated the uptrend it had been trading in since July 1 by forming a lower low under the Aug. 9 higher low at the $31.86 level. In order to confirm that the stock has start trading in a downtrend, Affirm will eventually need to bounce up and print a lower high under the Aug. 16 high of $40.97.

• A bounce to the upside may come on Tuesday, because on Monday, Affirm was working on printing an inverted hammer candlestick on the daily chart. When an inverted hammer candlestick is found in a downtrend, it often signals a reversal to the upside is on the horizon.
• On Monday, Affirm was trading lower on decreasing volume, which indicates the stock may be starting to run out of sellers. At press time, about 9.3 million Affirm shares had exchanged hands, compared to the 10-day average of 12.89 million.
• If Affirm fails to bounce on Tuesday, the second most likely scenario is that the stock may trade sideways in consolidation until printing its quarterly earnings. Bullish traders would prefer to see sideways consolidation take place because when a company runs higher into an earnings print, it becomes more likely the stock will suffer a bearish reaction to the news.
• Affirm has resistance above at $32.29 and $38.82 and support below at $26.06 and $19.96.

See Also:Shopping Through A Recession: How US Retail Sales Are Impacting Giants Such As Walmart, Target

Photo: Courtesy of affirm.com