A couple months ago, the chart activity for SnapChat (SNAP) led me to calculate 2 downside price targets areas for SNAP’s share price. In the time since, Facebook (FB), a main competitor, has had a nice upside price run. Even Twitter (TWTR), a stock that has lagged in the sector, has rebounded from its lows and appears to be in a new uptrend. Could better things be on the horizon for SnapChat?

With positive earnings and news for a lot of companies in the internet sector, let’s review how those downside price targets fared. Maybe some price target adjustments are in order based on all the good things happening in the sector.

SNAP – Point & Figure

Do the Point & Figure charts indicate that Snapchat’s downtrend is over? Let’s take a look.

High/Low Point & Figure Chart – $23 Bullish Price Objective

Closing Point & Figure Chart – $22 Bullish Price Objective

Point & Figure charting is a technique that is based on supply and demand for the shares. With 2 bullish price objectives, the demand seems to be greater than the supply at the moment.

The chart activity for SnapChat (SNAP) in my previous article indicated it was in a downtrend. Time to look at some candlestick charts to see what sort of trends or patterns may be present.

Analyzing Chart Activity for SnapChat (SNAP)

This first candlestick chart for SnapChat is a 1 year daily candlestick chart. It captures SNAP’s entire history as a publicly traded company on the stock exchange. On the chart I’ve indicated the date of my previous article and the 2 probable downside price targets I calculated for SNAP’s share price[s2If !current_user_can(access_s2member_level1)]……

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I review the chart activity for SnapChart (SNAP) to monitor during its upcoming earning report. A trading strategy is discussed based on 2 probable outcomes for SNAP’s share price.

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After reaching the first of the 2 downside price targets, SNAP’s share price developed a bullish reversal candlestick pattern. The Bullish Engulfing candlestick pattern is in one of 2 probable pattern areas. It developed at either:

1. 1. the bottom of a Wave C in a Zig-Zag wave pattern or
   2. at the beginning of Wave 4 in a Bearish Impulse wave pattern

If it developed at the bottom of a Wave C in a Zig-Zag wave pattern, that would indicate the low for SNAP’s share price has been made. The Bullish Engulfing candlestick pattern identified the bottom of the downtrend. I do not feel this is the case though. I think one more low is still to come and may be 3-9 months still out. While the candlestick looks like it developed on great buying volume, it was still slightly less than the previous month’s total volume. That does not provide a volume confirmation which is usually looked for.

If the Bullish Engulfing candlestick pattern developed at the beginning of Wave 4 in a Bearish Impulse wave pattern, then that means there is still a new low that has to be made. It could b a quick break below the previous low, or to could be a push down to the lower of the 2 price targets I calculated back in July. That would depend upon the length of the final wave that still has to develop to the downside, Wave 5.

So how can it be determined which one is the probable scenario for SNAP’s share price? It can be determined by monitoring the series of higher highs and higher lows that SNAP’s share price has been making. Let’s review those on a separate chart to clear up some of the clutter.

Higher Highs, Higher Lows

This is the same 1 year daily candlestick chart that is marked up to show the higher highs and higher lows. It has been making this new series of chart patterns since trying to reverse its downtrend from the $11.28 price level.

Here is the activity to monitor for SNAP’s upcoming earnings report:

If SNAP’s share price can make one more higher high, it should then be followed up by a correction period where it will be time to get long shares of SNAP. The area to get long would be on a subsequent correction back towards the current price level of $15. I would then use the bullish price targets from the Point & Figure charts as temporary price targets for those newly acquired shares.

If SNAP’s share price drops below the low from the 1st pullback area at any point after earnings, that is a sign for one more low below $11.28. It would also confirm that the Bullish Engulfing candlestick pattern developed at the beginning of Wave 4 in a Bearish Impulse wave pattern.

The probability of a higher high is increasing based on the MACD Histogram indicator. The indicator shows decreasing selling momentum during the last 2 correction periods. But since we do not rely on one indicator alone to forecast prices, it is probably best to wait for earnings at this point which are right around the corner.

SnapChat (SNAP) Summary

With a stock that has been in a downtrend since its IPO, there is no need to hurry into a position with SNAP before earnings. However, if the chart activity for SnapChat (SNAP) is favorable and its share price makes one more higher high after earnings, the time for SNAP to reverse into an uptrend is most likely underway.

But without that higher high confirmation, the possibility still exists for SNAP’s share price to drop down towards the $7 price target level I calculated back in July. A higher high removes that probability. It also increases the chances that the support area from the Bullish Engulfing candlestick pattern is going to hold.

Time to monitor share price activity for SNAP up to and after its earnings report if SnapChat is a company for you. It still has some user growth and cash flow issues, but so did Facebook when it was bottoming under $20.

On deck: Facebook (FB)

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