Square, Inc. (SQ), the stock is trading higher on Thursday, even though the company missed to 2020, the earnings estimates by a wide margin. The provider of e-commerce has recorded a loss of $0.02 per share in the quarter, below expectations for a profit of $0.13 per share, although revenue of $1.38 billion, marked by a healthy 44% year-to-year increase. The shareholders have chosen to ignore the quarterly loss after the company has notified that the company had picked up substantially in April in the wake of a pandemic driven by a decline in March.
This e-commerce business is very cyclical, related to the merchant activity in Canada, the united States, the United Kingdom, and Australia. Digital transactions has fallen dramatically, in March, companies around the world have closed their doors, but the reopening is the improvement depressed metrics. Similarly, no one can predict with accuracy the level of the daily activity of the activity in the third or fourth quarters, because of the impact of the pandemic.
The stock created a dynamic fuelled by the profits in 2017 and 2018, but the buyers then walked away, producing a mixed range bound action, while the quarterly results worked outside the home is of exceptional quality and the price-to-earnings (P/E) ratio, which has now dropped to 97. The global economy will need to recover fully in the coming quarters to justify this high multiple, but that seems unlikely, given the impact of the pandemic.
SQ Long-Term Chart (2015 – 2020)
The creation of the public company, in November 2015, opening at $ 11.20 and settle in a trading range between $8 and$ 16. A March 2017 breakout sparked a lot of interest from buyers, which gives a constant increase, which has posted an elegant series of higher highs and higher low in October 2018 all-time high of $101.15. The stock has lost altitude in the next two months, dropping more than 50% in December’s seven-month low of $49.82.
The rebound in March 2019 recovered about half those losses before reversing near $80, while a July breakout attempt has failed, leaving the place to a sharp drop in nine-month low in the middle of$50. Square stock rallied to the resistance of the range for the third time in February and has been thrust in the middle of$80, before a COVID-driven decline of the failure of the escape, to strengthen throughout the year of the resistance. The sell-off has broken the 2018 low in March, hitting an 18-month low in the low $30s before bottoming out.
The recovery printed the fourth point in a wide downward channel which now has contained price action for the past 19 months. It is not surprising, the channel resistance is in place at the bottom of $80, to the right near to the level of prices, which has triggered three times in the past 14 months. The stock is currently trading at approximately nine points below the barrier, trying to fill in the 9 March away, he is going to do at the same time, he reached the .786 Fibonacci sell-off of the retracement level.
The weekly stochastic oscillator has entered in a purchase cycle from the oversold zone at the beginning of the month of April, allow at least six to ten weeks of relative strength. It has now penetrated in the overbought zone and the lift in the same level that triggered occasions in December and February. The current buy-cycle is now entered in its sixth week, right on the lower edge of the predicted length, raising the odds for a reversal after the gap fills.
SQ in the Short-Term Chart (2018 – 2020)
The balance volume (OBV), the accumulation-distribution indicator reached a new high with prices in October 2018, and continued to show peaks throughout 2019, even if the stock was entered in a correction. This highlights the strong institutional sponsorship, greatly improving the long-term technical outlook. OBV has just broken one more time, even if the stock is trading well below the February peak, the addition of a bullish divergence which could possibly raise Square stock in the three figures.
The Bottom Line
Square stock is on the rise in two months, despite a mixed first quarter earnings report, highlighting the continued rise that could eventually support an escape.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.