Shares of Spotify Technology S.A. (SPOT) rocketed higher on Monday, gaining more than 19% after the European music streaming service reported an unexpected profit for the third quarter. Monthly average users (MAUs) rose 30% year over year to 248 million, beating previous guidance of 230 million to 245 million, while revenues also beat estimates with a 28% increase. The company now boasts 113 million Premium subscribers in 78 countries and territories.

Spotify offered in-line guidance despite the strong results, raising doubts about sales momentum going forward. Gabelli and Co. analyst John Tinker highlighted those concerns in a Tuesday morning note, maintaining a Hold rating on Spotify stock due to uncertainty about future profitability that may be assisted by the company's recent repurchase of 1.1 million shares at a $126 average share price.

The stock has struggled during 2019, failing two rally attempts near $150 and dropping within seven points of December's all-time low at $103 just three weeks ago. It gapped off that depressed level in reaction to this week's news, signaling the start of another range swing, but a sustained trend advance may not be in the cards until at least 2020. Even so, short sellers are abandoning ship while buyers are scooping up shares, lifting accumulation readings back to 2019 highs,

SPOT Long-Term Chart (2018 – 2019)

Long-term chart showing the share price performance of Spotify Technology S.A. (SPOT)
TradingView.com 

The April 2018 initial public offering (IPO) opened in the mid-$160s, generating a 35-point trading range, ahead of a June breakout and rally that posted an all-time high at $198.99 in late July. The stock carved a head and shoulders topping pattern into October and broke down, cutting through the breakout and IPO opening print. Selling pressure accelerated through the fourth quarter, reaching an all-time low at $103 on Dec. 24.

A bounce into February 2019 stalled at the 50% sell-off retracement level above $150, giving way to a proportional pullback, followed by a recovery wave that failed eight points above the prior high in July. It's instructive to note that this impulse ended within five points of the IPO opening print, highlighting hidden resistance at this "breakeven" level. That formidable barrier has also narrowly aligned with the .618 Fibonacci sell-off retracement level.

A persistent third quarter decline cut through support at the June low in the low $120s in September, setting off a selling climax that tested the December 2018 low successfully last week. This week's strong uptick has reinstated support at the June low and stalled at the .382 retracement level, indicating that pullbacks should offer low-risk buying opportunities in the coming sessions

The weekly stochastics oscillator crossed into a sell cycle from the overbought zone in June, predicting six to twelve weeks of relative weakness. It crossed into the oversold zone in August but needed another six weeks to complete a bullish crossover that should underpin gains into year end. However, the monthly indicator remains in a full-blown sell cycle, highlighting headwinds that could limit gains in the coming weeks.

SPOT Short-Term Chart (2019)

Short-term chart showing the share price performance of Spotify Technology S.A. (SPOT)
TradingView.com

The on-balance volume (OBV) accumulation-distribution indicator has carved a more bullish pattern than price, breaking out above 11-month resistance in June and posting an all-time high. It failed the breakout in August but has now remounted that level and returned to the high. This configuration indicates extensive bottom fishing as well as a short squeeze that should add considerable buying power in the fourth quarter.

Even so, the daily view warns bulls to curb their enthusiasm. Monday's strong uptick stalled at 200-day exponential moving average (EMA) resistance and the .382 long-term sell-off retracement, which has narrowly aligned with the .618 short-term sell-off retracement level. In turn, this highlights strong resistance above $140 while raising the odds that the stock will fill the gap in coming sessions. The blue line at $122 should signal a buy-the-dip trade, but a tight stop will be needed given proximity to the September low.

The Bottom Line

Spotify stock has rallied strongly this week after the company beat third quarter estimates, but it will take time to overcome heavy overhead supply.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.