The financial services, merchant services aggregator, and mobile payment company based in San Francisco, Square Inc. (NYSE: SQ) seems to be gearing up for a surge as per its latest charts.
#1 Symmetrical Triangle Pattern Breakout: The stock has currently broken out of a Symmetrical Triangle pattern which is a possible bullish sign. A symmetrical triangle is a continuation pattern and is characterized by two converging trendlines connecting a series of sequential peaks and troughs. This is marked on the daily chart as pink dotted lines.
#2 Ascending triangle pattern: The daily chart shows that the stock is currently forming an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in green color. A breakout from this pattern typically indicates bullishness. The base of the triangle generally acts as a good support level after breakout.
This implies a possible bullish bias for the stock.
#4 MACD above Signal Line: The daily chart shows that the MACD line (blue color) has crossed above the signal line (orange color).
This is a possible bullish setup.
#5 Bullish ADX: The ADX line has moved up from below –DI and +DI lines and is currently above the -DI line.
The +DI line is also currently above –DI line. This indicates possible bullishness.
#6 Fibonacci Support: Usually, after an up-move, stocks typically retraces to any of the key Fibonacci levels before surging back again. SQ had taken support at the 23.6% as well as the 38.2% Fibonacci support level as seen in the weekly chart before surging higher. This seems like a possible bullish sign.
#7 Downtrend Broken: The stock has currently broken out of a short-term downtrend as seen in the weekly chart.
#8 Above MA: In the weekly chart, the stock is currently trading above the 50-week SMA. This implies that the bulls are now in control.
#9 Bullish RSI: The RSI is above 50 and moving up, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for SQ if the stock crosses above $80.00.
TP: Our target prices are $90 and $100 in the next 3-6 months.
SL: To limit risk, place a stop loss at $74.10. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 13% to 25% in the next 3-6 months.
For a risk of $5.90, the target rewards are $10.00 and $20.00. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the ascending triangle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.