On Monday, Goldman Sachs initiated coverage of Snap, Inc (NYSE: SNAP) with a Buy rating and $90 price target. The stock sold off over 6% before bouncing up slightly due to overall market weakness despite the news.
Options traders, in anticipation of monthly OpEx this Friday, sold off a number of call contracts Monday morning, which didn’t help Snap’s stock either. As monthly options expiry nears, traders sell their calls and puts, which decreases the amount of open interest and reduces the number of net-long call positions.
This can create both downward pressure and/or volatility in both individual stocks and the general markets.
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The Snap Chart: Snap fell straight through a support level at $73.59 Monday morning but hit and bounced from a lower support zone at the $69.61 mark. Snap previously tested the level as support on Aug. 16 and Aug. 17 and held above it.
Snap has been trading sideways in a tight range between the $69 and $76 level since Aug. 12, consolidating the Aug. 10 new all-time high of $80.85. The stock reached its all-time high shortly after gapping up about 17% higher the day following its July 22 earnings beat.
The sideways consolidation allowed Snap to fill partially fill the gap. Gaps fill 90% of the time, however, so it is likely Snap will trade down toward the $63 level to fill the gap at some point in the future.
Snap dropped lower Monday on above-average volume, which is bearish. As of mid-afternoon, about 14.22 million shares of Snap had changed hands compared to the average 10-day volume of 10.46 million. When a stock trades lower, bulls prefer if it happens on low volume.
The stock is trading below the eight-day and 21-day exponential moving averages but the eight-day EMA is trending above the 21-day, which indicates indecision.
If Snap is unable to trade back up toward the $73 level by Tuesday, the eight-day EMA will cross below the 21-day, which would be bearish. Snap is trading above the 200-day simple moving average, which indicates overall sentiment in the stock is bullish.
Bulls want to see Snap hold above $69 and for big bullish volume to come in and prop it back up above the EMAs. If the stock can regain the levels as support, it has room to trade back up toward its all-time high. Bears want to see sustained bearish volume drop Snap’s stock down under the $69 level. If the stock loses the area as support, it could fall toward the $65 mark.
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