Premarket Readiness Stock of the Day: Why This Analyst Says Snap May Be Worth Buying the Drop
After a huge move in either direction following an earnings report, a problem can do one of three things: it can go in the same direction as the previous day’s move, it may reverse course sharply or it may enter a period of consolidation.
In the case of Snap inc. INSTANTANEOUS As of 1:30 p.m. EST, investors are in digestion mode after Friday’s plunge of $6.39 or 39% from $16.35 to $9.96.
Sean Udal, The CIO of Quantum Trading Strategies joined Monday’s PreMarket Prep Show to discuss why he might be looking to “buy the dip”, making it the Pre-marketing of the day’s preparation stock.
Friday-Open at the top, closed at the bottom: You would think that with a lower open of $5+ on what was action over $16 there would be some sort of early bounce. It certainly wasn’t as the show peaked within a dime of its opening print at $11.11 and came under selling pressure throughout the session.
As a result, the show hit a low of $9.91 on Friday afternoon, but was unable to move away from that low, ending the session at $9.96,
Historical perspective: Snap bottomed in March 2020 at $7.89, which was comfortably above its all-time low from December 2018 at $4.82.
Remarkably, the show peaked last September at $83.34 and weakened to end that month at $73.87. It has been lower in eight of the past nine months with the heavy damage occurring last October, from $73.87 to $52.25.
The other major haircut came between February and May of this year, dropping from its late February close of $39.94 to $14.11 at the end of May.
Udall’s Hold: Udall began with a comparison of recent price developments in Netflix Inc. NFLX with Snap. He said: “What Netflix did, several capitulations two quarters in a row, that’s exactly what Snap is doing.”
He added: “Honestly, I didn’t think the numbers were that bad. It could set up my three-day rule.” Udall also thought, “Snap might be a candidate for some M&A because they have eyes and MAUs, this company made $700 million in revenue in a few years and can now make $5 billion.”
SNAP Price Action: Based on Monday’s price at 1:30 PM EST, the problem may be on the verge of becoming what is known as the “undercut and rally” formation. This comes after an extreme move – a decline, in this case – that undermined the previous day’s low of $9.91 falling to $9.66, and rebounds to close above that low on the next session.
The simplicity of this technique is that an investor can use the breakout of Monday’s low as a possible exit point if the issue continues to decline. As of 1:30 p.m. EST, the issue is session flat at $9.96.
The discussion on the question from Monday’s show can be found here:
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