Snap Inc. (SNAP) is due to report first quarter earnings after Tuesday's closing bell, with Wall Street analysts expecting the company to report a loss of 12 cents per share on $306 million in revenues. The stock rose 22% on Feb. 6 after the company beat fourth quarter estimates, added to gains into April and is now trading at an eight-month high. Even so, the long-overdue rally still hasn't ended the string of lower highs in place since the 2017 initial public offering.
The uptick ended on April 10, two days after RBC Capital added to a string of upgrades, with buying enthusiasm grinding to a halt after research firm eMarketer Research predicted that 2019 users could drop 2.8% year over year to 77.5 million. The stock clawed higher after a reversal, but subsequent downgrades by Wedbush Securities and Vertical Group have kept sellers on the offensive for the past two weeks.
SNAP Weekly Chart (2017 – 2019)
The company came public at $24.00 in a widely publicized offering in March 2017 and hit an all-time high at $29.44 in the following session. The first downdraft found support in the upper teens two weeks later, yielding a bounce that failed at the IPO opening print. Persistent selling pressure broke the March low in June, initiating a steep decline that accelerated in the second half of 2018 after price action broke four-month support near $10.50.
The stock got cut in half into the third week of December, finally bottoming out at an all-time low near $5.00, ahead of a modest uptick that accelerated to higher ground after the February 2019 earnings report. Follow-through buying pressure added four more points into April, stalling about two points below the June 2018 swing high, ahead of a modest pullback into this week's confessional.
The four-month rally looks less impressive after drawing a Fibonacci grid across the 2017 into 2018 downtrend, failing to reach the .382 sell-off retracement level above $14.00. That price level marks a logical profit target if committed buyers return after the news, while the narrow alignment with the June 2018 high offers a perfect opportunity to end the long string of lower highs. Conversely, the stock rallied decisively above the 50-week exponential moving average (EMA) in March, offering support near $10 if sellers take charge after the report.
The weekly stochastics oscillator crossed into a sell cycle in February, predicting at least six to nine weeks of relative weakness. Indicator and price have diverged since that time, with the sell signal gathering force while price has hit multi-month highs. Bearish power is growing ahead of earnings, but the monthly oscillator is still engaged in a buy cycle, limiting the downside. This conflict adds confidence to a low-risk buying opportunity at moving average support near $10.
SNAP Daily Chart (2018 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high in February 2018 and entered a persistent distribution phase that notched an all-time low at the start of 2019. Proportional buying power since that time has matched positive price action, reaching the 50% retracement of the 11-month decline. This signals modest progress in rebuilding sponsorship but not enough to declare an end to the multi-year downtrend.
The 200-day EMA confirms new support near $10.00, while the March 14 gap will fill if a sell-off reaches that level, adding to the potential buying opportunity. The February breakaway gap may not fill for years, which would be typical for an emerging uptrend. However, the sword cuts both ways because a decline into that level requires a breakdown through moving average support, raising the odds for additional downside that tests last year's low.
The Bottom Line
Snap shares could trade as high as $15 after a positive earnings report, while a sell-the-news reaction should offer a buying opportunity near $10.00.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.