The well-known provider of audio streaming services that operates through two segments, Premium and Ad-Supported, Spotify Technology SA (NYSE: SPOT) seems to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Ascending triangle pattern Breakout: The daily chart shows that the stock has currently broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in pink color. The breakout level of the ascending triangle pattern generally acts as a good support level.
Daily Chart – SPOT
#2 Trading Above MAs: The stock is currently trading above both its 50-day and 200-day SMA, which implies that the bulls are currently in control.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because the (+DI) line is greater than the (-DI) line, and the ADX line has started to rise from below both (+DI) and (-DI) lines.
#4 MACD above Signal Line: In the daily chart, the MACD line is above the MACD signal line which is a bullish signal.
#5 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates possible bullishness.
#6 IH&S Pattern Breakout: From the weekly chart, we can see that the stock has recently broken out of an Inverted Head and Shoulders (IH&S) pattern. This pattern is marked in the weekly chart in orange color. An IH&S pattern is a bullish pattern. A breakout from an IH&S pattern is usually the sign of an upcoming bullish move. The weekly chart also shows that the stock is currently trading above its 50-week SMA. All these are possible bullish signs.
Weekly Chart – SPOT
#7 MACD above Signal Line: In the weekly chart as well, the MACD line is above the MACD signal line which is a bullish signal.
#8 Bullish Stoch: The %K line is currently above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the recommended buy level for SPOT is if the stock corrects to the breakout level of the IH&S pattern at around $300.00. However, you can purchase half the intended quantity of shares of SPOT above yesterday’s close, at around $321.00.
TP: Our target prices are $335 and $350 based on the breakout from the Ascending Triangle pattern.
SL: To limit risk, place a stop loss near $313.00 (for entry near $321.00) and $281.00 (for entry near $300). Note that this stop loss is on a closing basis.
Our target potential upside is 4% to 17% in the next 4-6 months.
- Entry near $300: For a risk of $19.00, the target rewards are $35.00 and $50.00. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry near $321: For a risk of $8.00, the target rewards are $14.00 and $29.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x 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 and IH&S 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.
Happy Trading!
— Tara