What To Watch As Snapchap Parent Snap's Stock Swings In This Trend

What To Watch As Snapchap Parent Snap's Stock Swings In This Trend

Snaphat parent Snap, Inc SNAP was trading over 5% lower at one point on Wednesday, and when the S&P 500 reacted bullishly to the monthly minutes released by the Federal Reserve, Snap failed to significantly follow suit.

The social media company’s pullback is healthy, however, because Snap has been trading in an uptrend since Aug. 2 and was in need of a higher low.

An uptrend occurs when a stock consistently makes a series of higher highs and higher lows on the chart.

The higher highs indicate the bulls are in control while the intermittent higher lows indicate consolidation periods.

Traders can use moving averages to help identify an uptrend, with rising lower time frame moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term uptrend.

Rising longer-term moving averages (such as the 200-day simple moving average) indicate a long-term uptrend.

A stock often signals when the higher high is in by printing a reversal candlestick such as a doji, bearish engulfing or hanging man candlestick. Likewise, the higher low could be signaled when a doji, morning star or hammer candlestick is printed. Moreover, the higher highs and higher lows often take place at resistance and support levels.

In an uptrend, the "trend is your friend" until it’s not, and in an uptrend there are ways for both bullish and bearish traders to participate in the stock:

  • Bullish traders who are already holding a position in a stock can feel confident the uptrend will continue unless the stock makes a lower low. Traders looking to take a position in a stock trading in an uptrend can usually find the safest entry on the higher low.
  • Bearish traders can enter the trade on the higher high and exit on the pullback. These traders can also enter when the uptrend breaks and the stock makes a lower low, indicating a reversal into a downtrend may be in the cards.

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The Snap Chart: The most recent higher low within Snap’s uptrend was printed on Aug. 9 at $10.02 and the most recent higher high was formed at the $12.73 mark on Tuesday.

On Wednesday, Snap looked to be forming its next possible higher low within the pattern above the eight-day exponential moving average (EMA) on the daily chart, which has been guiding the stock higher since Aug. 10.

  • If Snap closes the trading day near to its opening price or near the high-of-day, the stock will print a doji or hammer candlestick, respectively, which could indicate higher prices will come on Thursday. If the stock closes the session near its low-of-day price, the upper wick would suggest lower prices are in the cards, which could put Snap in danger of losing the eight-day EMA.
  • There are multiple gaps above on Snap’s chart that the stock is likely to fill at some point in the future. The closest gap exists between $12.73 and $15.47, which was left behind on July 22 after Snap received a bearish reaction to its quarterly earnings print.
  • Snap has seen slightly higher-than-average volume recently, which indicates interest has been returning to the stock. At the time of writing, about 52.2 million shares had exchanged hands, which matches the 10-day average but is above what Snap was seeing prior to its earnings print.
  • Snap has resistance above at $12.82 and $14.58 and support below at $11.11 and $9.47.

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