Snap Inc. (SNAP) shares fell more than 7% during Monday's session, accelerating a decline that began in late July and into early August.
Earlier this month, Evercore upgraded the stock from In-Line to Outperform and raised its price target on Snap from $18 to $20 per share. Analyst Kevin Rippey was impressed by the trajectory of the social media company's fundamentals through much of 2019. While he remained on the sidelines for much of the year, the company's move into gaming could provide it with $350 million in revenue at attractive EBTIDA margins by 2022.
Snap's fundamentals may be improving, but it still faces some hurdles on an operational level. Facebook Inc. (FB) recently announced that it would be launching a companion app to Instagram called Threads, which would "promote constant, intimate sharing between users and their closest friends." The move could represent new competition for Snap as it competes against the same use case and target demographic.
From a technical standpoint, the stock broke down from its 50-day moving average at $15.87 to retest reaction lows of around $15.00. The relative strength index (RSI) moved toward neutral levels of 44.53, but the moving average convergence divergence (MACD) resumed its bearish downtrend. These indicators suggest that the stock could see further downside ahead before experiencing a period of consolidation.
Traders should watch for a breakdown from reaction lows to retest lows from mid-July of around $14.00. If the stock rebounds back above the 50-day moving average, traders could see a move higher to retest highs of around $18.00. The company's next earnings date isn't until Oct. 24, when investors could see ongoing improvements in fundamentals that could send shares higher.
The author holds no position in the stock(s) mentioned except through passively managed index funds.