Is There a Bottom for SNAP ?
On March 3, 2017 shares of Snap Inc ( ) printed a now all-time high of $29.44. Ever since then the social media/ camera company has seen very little positive sentiment. Just a couple of short months ago now SNAP hit its lowest price since its 2017 IPO printing $4.82/share on December 21, 2018. After a near 84% drop in share prices peak-to-trough we contend that we are starting to see green shoots of positivity appearing for the company with regards to the share price.
Sentiment
At the present SNAP represents one of the top 6 shorted stocks on the NYSE. As of 3/12/2019 nearly 17.8 % of the stock’s float are shares that are short. That’s quite a number no doubt. Considering the daily average trading volume, it would take approximately 4 days for investor’s to cover their short. This produces both a problem and an opportunity. Stocks with such a heavy short interest are sometimes hidden jewels from an investment point of view. They also could be junk. After all they’re being shorted heavily for a reason.
On one side you have a crowd. A heavily shorted stock says there are a LOT of people that are betting against SNAP. Consequently, logic would lead one to purport a strong case that the stock heads lower. On the other side though, being such a heavily shorted stock, also represents a TON of money betting on the stock going down. As most of you know when seemingly everyone is running the same direction it usually doesn’t end well for the crowd. And so, one little piece of “good news” could ignite a rally as investors whom are short rush to cover. As most of you know this is a classic short squeeze and it happens all the time. But, is it happening (or about to happen) in SNAP?
Blindly going long SNAP just because the price seems “low” relative to its all-time high is not the best investment strategy. Nor is buying a stock that is heavily shorted just to be contrarian. So, let’s look at a Daily chart for one interpretation of the count for SNAP.
The Wave Count
A very simple yet powerful aspect of the wave principle is the fact that it gives the practitioner perspective. There is perhaps nothing more paramount to wave practitioners than extremes in mass sentiment. As stated above there appears to be an extreme negative sentiment in SNAP. At extremes there are opportunities.
Before we get into any wave analysis I want to introduce that we are granting 2 assumptions here. One being the progress from inception of Snap Inc, to the IPO high is indeed a fist wave up. And, two that SNAP isn’t going to zero.
So, if the $29.44 is the top of wave I the rules of Elliott wave state that there will be a corrective sequence against that high in the same degree. In this case it is to the downside as shown in the chart below for SNAP. I believe we are seeing evidence now that that correction is complete at the $4.82 low.
The price decline in SNAP from the IPO highs to current levels.
Green Shoots ?
The chart above proposes a simple for wave II. If we have indeed ended the wave II there then we would look for a up to set the stage for a confirmation of a bottom. In the chart you can see the break of a downward trendline that has contained SNAP prices since August of 2018. Also, there is an acceleration gap consistent with separation seen in third waves in the February price action. We haven’t see any acceleration gaps to the upside since February of 2018 (and even that one was part of a upward correction) as most of the gaps have been to the downside.
We’re plotting a 5 wave off the $4.82 low for the first wave (wave 1). Ultimately while the $4.82 low holds there should at least be another wave of the same degree higher in wave 3 or C. Only time can truly tell if we’ve made a bottom here but there are signs of green shoots here in the near term. Let’s see if it proves out.
James
Analytical Team
