Social media companies have moved into the focus of many active traders in recent weeks. Analyst forecasts and recent quarterly results seem to be pointing to sharp climbs in daily active users and other key metrics. Some traders are using the strong numbers as a leading indicator of potential moves higher over the coming weeks. In this article, we look at a few charts from across the social media segment and try to determine how traders will be positioning themselves in case of a major move higher.
- Strong metrics in Snap Inc.'s (SNAP) recent earnings report suggest that many people are turning to social media for connection. This macro-level shift could drive share prices over the weeks and months ahead.
- The nearby support and resistance levels shown on the charts will likely be used as guides for trend traders when deciding where to place buy and stop orders.
Global X Social Media Index ETF (SOCL)
Active traders who are interested in niche market segments such as social media often turn to exchange-traded products such as the Global X Social Media Index ETF (SOCL). Fundamentally, the fund comprises 39 companies and has total net assets of approximately $230 million.
Looking at the chart below, you see that the bulls have been in clear control of the momentum since early May and that the period of consolidation as shown by the trendlines appears to be over. The recent break beyond the resistance near $51.50 will likely be used by followers of technical analysis to mark the beginning of a move higher. From a risk-management perspective, stop-loss orders will most likely be placed below $49.45 in case of a sudden shift in market fundamentals.
Snap Inc. (SNAP)
The social media company that has caught the attention of many over the past two weeks is Snap. The company recently reported that its number of daily active users climbed by 18% year over year to 249 million. As many people find themselves more physically disconnected due to the ongoing COVID-19 pandemic, many are turning online for social connection.
The shift in user behavior has helped push revenues for the company sharply higher to $679 million, which was significantly more than the $550.1 million that analysts were expecting. Looking at the chart, you can see that the price has moved out of a defined trading range and now looks poised to move higher.
Twitter, Inc. (TWTR)
Another top social media stock that many active traders will be watching closely over the weeks ahead is Twitter, Inc. (TWTR). Looking at the chart below, you can see that the defined range has acted as a strong guide for traders since the bounce in March. The recent rise toward the top end of the range suggests that the stock has the interest of the bulls.
Trend traders will likely keep a close watch on Twitter stock over the next several sessions because a close above the nearby trendline could mark the a new leg of the uptrend. From a risk-management perspective, stop-loss orders will likely be placed below the combined support of the 50-day moving average and the trendline in case of a sudden shift in market sentiment or company fundamentals.
Social media's role in helping businesses is significant. It facilitates communication with customers, enabling the melding of social interactions on e-commerce sites. Its ability to collect information helps focus on marketing efforts and market research. Social media can also help in promoting products and services, as it enables the distribution of targeted, timely, and exclusive sales and coupons to would-be customers. Further, it can help in building customer relationships through loyalty programs linked to social media.
The Bottom Line
Social media stocks are starting to take center stage as many people start to find themselves more isolated than usual. The shift in user behavior is a positive for companies in the social media sector, and based on the charts discussed above, it appears as though prices could be headed higher from current levels.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.