Shares of payment solutions provider Square Inc (NYSE: SQ ) had an amazing start to the new year last week as they rallied about 18% in the first four trading sessions of 2018. This latest rally followed a six-week corrective period that in the greater scheme of things looks to have been a healthy consolidation phase.
For reference, I shared a trading idea to play SQ stock from the short side for a mean-reversion move on Nov. 28 . Specifically, I said, "the mean-reversion process has now begun" and "I see this stock ultimately mean-reverting back down into the mid to high $30s (say the $35-$37 range)" before a better buying opportunity can come about.
I then followed up on this trading idea on Dec. 14 and called for profit-taking on this short-side idea I had offered in SQ stock.
With last week's strong outside bullish reversal rally SQ stock has now satisfied the type of move I need to see to feel more comfortable slipping into long-side opportunities again in the stock. On the chart with weekly increments note that the aforementioned corrective period, which measured about 30% deep, pulled the stock back toward the lower end of the 2017 up-trending channel (black parallels).
The consolidation phase also allowed the weekly momentum indicators to cool off somewhat while remaining bullish. For those familiar with candlesticks, note that last week's candlestick fully engulfed the previous four weeks of price action in one heck of a bull rally.
Moving averages legend: red - 200 week, blue - 100 week, yellow - 50 week
On the daily chart note that the 30% dip in SQ stock brought the daily MACD oscillator at the bottom of the chart back into oversold territory after being hopelessly overbought last November.
Thematically, I remain bullish payment services companies like Square in 2018. If you would like to find out the rest of my 2018 themes, particularly the ones for the first quarter, please join the special 2018 Q1 trading and investing themes webinar on Thursday, Jan. 11 by registering here .
As a result of last week's rally SQ stock has also again hurdled itself above the yellow 50 day simple moving average again, which has acted as a decent reference point through 2017.
Will SQ stock continue to rise at last week's clip? Unlikely. Is the stock overbought? Quite possibly so. None the less, last week's statement on the part of the bulls was clear and while some backing and filling are possible in the near term for the stock, a next upside target in the high $40s now looks likely through a multi-week/month lens. As always, any strong bearish reversal would lead to a stop loss signal on a trading basis.
Moving averages legend: red - 200 day, blue - 100 day, yellow - 50 day
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