Snap Could See Bearish Engulfing Despite Strong Q1 Results

Snap Inc. (SNAP) shares fell 7% during Wednesday's session even though the company reported better-than-expected first quarter financial results. Revenue rose 38.9% to $320.43 million, beating consensus estimates by $14.15 million, and non-GAAP net losses came in at 10 cents per share, beating consensus estimates by two cents per share. Daily active users rose 4 million on the quarter to 190 million, but that figure is slightly lower than the 191 million users reported a year ago.

Analysts reacted positively to the financial results, although some remain neutral to bearish on the stock at current prices. JPMorgan analysts raised their price target on Snap shares from $7.00 to $11.00, and Evercore ISI analysts raised their price target from $5.00 to $12.00. Morgan Stanley analysts maintained an Underweight rating with a $9.00 price target, while Jefferies analysts raised their price target to $13.00 but noted that the stock already reflects the improvements.

Since the beginning of the year, Snap shares have nearly doubled as the social media platform recovered from a series of hurdles that it had faced since going public in 2017.

From a technical standpoint, the stock moved sharply lower from R1 resistance at $12.07, creating a potential bearish engulfing pattern. The relative strength index (RSI) continued to moderate toward neutral levels with a reading of 49.55, but the moving average convergence divergence (MACD) experienced a bearish crossover in mid-April. These indicators suggest that the stock could see more near-term downside ahead before consolidating and potentially reversing the trend.

Traders should watch for a breakdown from trendline support toward the pivot point and 50-day moving average at $10.64 over the coming sessions. If the stock rebounds from trendline support, traders could see a move higher to retest R1 resistance levels at $12.07. If the stock continues to move higher, traders should watch for a move toward upper trendline and R2 resistance at $13.13, but that scenario appears less likely to occur given the recent bearish sentiment.

The author holds no position in the stocks mentioned except through passively managed index funds.