A gain of approximately 163% in 2018 for shares of Square, Inc. (SQ) likely would not have been possible without strong institutional demand for the stock. In fact, Square is a regular household name for Mapsignals, and I even suggested the stock as a buy opportunity in a post from March. Since I wrote that article on March 8, Square stock has gained 82.5%. The thing that attracted me to Square then is occurring now … unusual trading activity.

It's no secret that payment tech is growing at a fast rate globally. The point-of-sale (P.O.S.) market is being dominated by Square, but even with a terrific fundamental picture (I'll go over this later), the true tell on the near-term trajectory of the stock lies in the trading activity. At many points in 2018, Square shares have increased in price alongside an increase in volume. This can be indicative of smart money accumulating shares. The bottom line here is that the manner in which a stock trades can oftentimes alert you to the forward fundamental picture more so than simply looking at a company's financials alone. (See also: 8 Stocks to Lead the Digital Payments Boom.)

For Mapsignals, the strongest indicator of positive price momentum is obtained by measuring potential institutional buying in the shares. In 2018, Square has logged 18 of these rare signals (see chart). We like to see bullish activity in the shares alongside solid forward fundamentals, as this indicates that demand for the stock should increase over time.

In the chart below, Square stock broke out to new 52-week highs on big volumes. I also point out the first unusual trading alert back in March. Shares should continue the upward trajectory:

 

Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized, unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.

When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these for Square are as follows:

  • Year-to-date (YTD) outperformance vs. market: +154% vs. SPDR S&P 500 ETF (SPY)
  • YTD outperformance vs. sector: +146% vs. Technology Select Sector SPDR ETF (XLK)
  • Bullish unusual trading signals

Just to give you an idea of what our unusual trading activity signals look like, have a look at all of the UI signals that Square stock has made over the past year:

One-year chart showing activity signals in Square, Inc. (SQ) stock

Now, we take it a step further and score the best stocks showing this activity. Below, you can see the historical times when Square made buy signals for Mapsignals. These are the highest-rated signals in our stock universe:

Historical chart showing activity signals in Square, Inc. (SQ) stock

On top of a great technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Square has solid revenue and gross payment volume (GPV) growth rates:

  • Q2 year-over-year revenue growth rate: +48%
  • Q2 year-over-year GPV growth rate: +30%
  • Increased 2018 revenue guidance on Aug. 1

Square checks the box on strong technicals and fundamentals while showing bullish institutional momentum in 2018. We believe that the current level for the shares is in position for further upside. All of this points to further long-term bullish action for the stock. (For more, see: Square to Rally 20% on Expanding Ecosystem.)

The Bottom Line

Square represents a potential buying opportunity for the long-term investor. Given the solid revenue growth and multiple unusual accumulation signals, this stock could be worth a spot in a growth-oriented portfolio.

To learn more about Mapsignals' institutional signals, please visit our "About Us" page.

Disclosure: The author holds a long position in Square stock at the time of publication.

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