Snap Underwriters Successfully Defend $17 For Third Day In A Row

In the past couple of trading sessions, Snap Inc SNAP has faced a major test of a critical technical support level and has held its ground. Last Thursday and Friday and again Monday, Snap shares dipped as low as $17.00, but each day the stock closed at or above the key $17.00 level.

While fundamental investors may be pointing to Snap’s new $100 million deal with Time Warner Inc TWX as the reason Snap has found support, technical traders see the $17 level as a line in the sand.

The most obvious reason $17 is critical is because $17 was Snap’s IPO price just several months ago. High-profile Snap underwriters, such as JPMorgan Chase, convinced heavy-hitting clients that Snap shares were a good buy at $17, and now those IPO buyers face the prospect of being underwater on their investments if Snap breaks down below $17.

As a result, JPMorgan has bought more than 11.2 million shares of Snap stock on the open market, according to the company’s latest filings. The institutional buying coupled with technical traders that hope to profit off of the potential support at $17 have combined to keep Snap above the $17 level thus far.

This phenomenon of institutional support at the IPO price level is not unique to Snap. Facebook Inc FB found short-term support at its IPO level of $38 on its very first day of trading amid market rumors that its IPO underwriters were buying more than a billion dollars of Facebook stock.

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“Underwriters don’t want the stock to go under the IPO price because it looks very bad for the issue,” Dennis Dick, proprietary trader at Bright Trading LLC and co-host of Benzinga’s PreMarket Prep radio show, said of Facebook. “It looks like they basically underwrote the stock too high.”

Technical traders and high-frequency traders will often recognize the type of support this institutional buying can provide and will place their own buy orders at the IPO price or slightly higher, anticipating limited downside.

However, as early Facebook traders know all-too-well, that institutional support is no guarantee. Facebook eventually broke through the $38 level and dropped as low as $17.55 in the weeks that followed.

Snap investors are hoping the $17 level continues to hold, but a breakdown in the next several days could mean major downside ahead as the stock ventures into uncharted territory and makes new all-time lows.

Joel Elconin contributed to this article.