Snap Inc. (SNAP) shares briefly rose more than 2% on Tuesday after Wedbush analysts upgraded the stock to Outperform from Neutral and raised their price target to $12.25 – a 25% premium to Monday's closing price. The analyst believes that recent management changes suggest the potential for a shift in strategy, which could be a key catalyst for the stock.
Over the past month, Snap has seen its shares fall more than 20% despite posting strong second quarter earnings in early August. Morgan Stanley, Nowak, Summit Insights and other Street analysts maintain their bearish ratings on the stock, citing its app redesign efforts, troubles monetizing its user base and the (widely expected) slowdown in active users.
Facebook, Inc. (FB), Twitter, Inc. (TWTR) and other social media competitors have also come under scrutiny from President Trump for banning accounts and regulators for spreading inaccurate news, which could continue to affect the entire sector, (See also: How Snapchat Makes Money.)
From a technical standpoint, the stock has moved sharply lower since late August but started to rebound earlier this week. The relative strength index (RSI) remains at very oversold levels with a reading of 27.00, but the moving average convergence divergence (MACD) remains in a prolonged bearish downtrend. After its brief reversal, the stock stands at a key resistance level that could determine its future direction.
Traders should watch for a breakout from S1 resistance at $10.06 and trendline resistance $10.50 to confirm a reversal in the downtrend. If that happens, traders should watch for a move to the pivot point and reaction highs at around $11.72. A failure to break out from S1 resistance could lead to a move lower to test S2 support levels at $9.22 – below the psychologically important $10.00 level. (For more, see: Snap Could Rebound 30%: Bear Traps Report.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.