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Square is shifting gears! Low risk 65% gain in < 3 months.

Square () is a serious growth company and is certainly a long-term investment. I'm bullish on long term, but I believe especially today, the stock has presented us with an excellent buying opportunity. As usual, I don't talk fundamentals. I'm only looking at the chart from a technical analysis perspective. Sometimes, after a stock is running inside an ascending parallel channel, there comes a point when it seems to be dropping below the channel, but the reality is it's only changing gears to enter a an even faster ascending parallel channel. It's kind of like the small moment of deceleration a racer has to suffer in order to shift to a higher gear, a phenomenon that coming generations will never know thanks to Tesla's single-speed transmission taking over the world. Anyway, back to . Let's look at the chart.

I have two parallel channels. The current one, and the new one I expect price to be bound within in the near future. I also have a set of steeper-inclined parallel lines which delineate local bullish movements. I believe this inclination will keep supporting price much longer in the coming bullish moves. I also believe that it will be the slope of a parallel channel later this year, but I'll sit on that idea for now.

Based on that, I drew a price path prediction. My target is $355 in 76 days, by 7 April 2021. My stop loss is at $195. Picking the stop loss was rather hard and somewhat arbitrary. I picked it based on historic RSI levels, how long I expect a drop to last in case a drop occurs, and basic support and resistance levels.

Most importantly, the last close has hit the very bottom of the parallel channel. My estimation is that this is a golden buying opportunity. My only worry is that even though the parallel channel has held the price four times since September 2020, it has failed one time (30 Oct - 3 Nov) which I marked in the red circle. It wasn't a serious break though. However, we must be prepared for it to happen again. That's why I set the stop loss a little bit lower. However, I am confident it will hold the price, and even if it doesn't, it will make an even better buying opportunity. And even if it breaks lower, Square is a solid investment and is certainly a hold.

Conclusion:

If you're in it for a trade, then decide the size of your position depending on how much you are willing to lose. If you're willing to lose $100, and our stop loss is at -10%, then open a trade with $1000 and set your stop loss.
If you're in this for investment, this is a good opportunity to add to your long-term position. So, buy and hold.

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Another example of gear shift from ETSY. I might write a new dedicated idea for Etsy.

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So I hear that SQ is going lower because Bitcoin is trading lower. But that doesn't make any sense. Square owns a very very small amount of Bitcoin. If they're tied, I would be happy to buy SQ lower, because I see Bitcoin going lower. Check my Bitcoin idea.
Square is one of those companies that is a good buy and is a worthy long term investment, even if recession was hitting tomorrow.

Trade active

This is looking good. I was experimenting with EMA lines after tsiwiec3 mentioned it. I found 83 day hlc3 EMA to be perfect. Of course we can't judge that this is bullish candle until at the close or a little before it. Even when it was a doji candle an hour ago, I was still of the opinion that it's a reversal. I'm also betting that RSI will not reach as low as the previous bottom. If it does, then that's my signal for exit. That is also when the stop loss will be hit I estimate.

Conclusion: This is a great entry point. Stop loss is when RSI sinks below previous bottom.

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There you go. If you bought yesterday, congratulations. Stop loss stays where it is.

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Beautiful. Now we're back inside the parallel channel. The shape of the candle is neutral, but it gapped up which is bullish.
Regardless, let's see if the more inclined parallel channel will take effect.

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We reached the top of the new channel. Time to take a break in my opinion. Just a small touch of the bottom of the channel should define its borders. That's all we need before a new all time high.

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I think a good entry point is coming this week. I have drawn two paths. One (the curve) where price has seen a top today and goes red tomorrow, taking a break and touching the bottom of the channel. The second path is where price continues going up and squeezes itself in that little tightening wedge (forgot the term), and then on the day of earnings, drops by around 5%. That's another chance to buy. With the second scenario, I don't see it reaching the bottom of the channel. I rather see it going sideways until it hits the bottom of the channel, or climbing back to the top of the channel.

One more point. With the rising bond yields, I hear that that historically correlates with the tech sector falling and the financial sector rising.. Well Square is unique in that it benefits from both. So with the current uncertainty, holding SQ positions you well in my opinion.

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SQ recovered from its drop very quickly. I can't judge if it's over or not. I have points on both sides of the argument.

Bullish arguments:
- Today's candle is bullish because gapping up and above trend line which is the top of the previous channel.
- The two previous candles both tested the same low (double bottom) at $262.
- There is a lot more room to the upside than to the downside. In numbers, while SQ is sitting at $278 right now, it is easier and more probably to reach $308 than it is to drop back down to the recent bottom at $260.

Bearish arguments (The correction is not over):
- Price did not reach the bottom of the channel. This is a weak argument because that level is not even a well established trend line.
- Earnings are still coming. There is no way to tell toward which direction will it influence the price action. The market is pretty irrational reacting to earnings as we have seen recently with Apple and Tesla. So this is also a weak argument.

Conclusion: More bullish than bearish. Too bad we couldn't catch the bottom right, but at least we know that SQ has strength.

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Today is a bloodbath across all tech stocks and more. However, I still insist that SQ is one of the better holdings due to its growing low-cost financial services platform.

It's funny that my Fibonacci line held price very precisely today. It also happens that the bottom of the old channel crosses exactly that same point. It's becoming a doji candle which I see as a reversal candle in this condition. Therefore I see tomorrow gapping up. I also still think the new channel is in play. The reason I don't see this breaking the channel is that it is like a black swan event happening across the market as a whole.

This drop should not be scary to investors. It takes out leverage longs which is good for the market. Too much confidence is not good for the market.

We also have earning today after market close. That might push the price back above the channel. So this should be a good place for entry.

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OMG this is soo bullish!

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Square Earnings beat the expectations but price is still stumbling lower than yesterday's close. I wouldn't rush to buy in the first minutes of marke open. But I would wait and observe the first 30 minutes. Notice that yesterday, most stocks went down the first 30 minutes of market open, then reversed thereafter. There is no fundamental reasoning for the drop of Square except negative light shed by its Bitcoin purchase announcement yesterday. It's still a buy.

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Just like yesterday, it's dropping in the first minutes of market open. We have a channel to guide us. So my opinion is to buy at the bottom of the channel or at 10 AM where a reversal is likely. Let's keep watching.

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If this is reversal, then it's a little bit too early. Not a good sign on its own unless followed by confirmation. Let's see what happens.

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This is the critical point. If this breaks on the 10 minute chart, then we exit short term trades until we see a start of a bullish momentum.

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They always say that catching a falling knife is the most dangerous thing. But this is the 9 candle and we are at support. We have a controlled risk trade. So we stick to it.
Switching back and forth between extended hours and normal is wrong. But I'm sticking with extended.

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This is a reversal signal. It's a relief. But we still need another bullish candle in the next 10 minutes.

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What' I'm hoping for now is a green 1 candle that trades above the 9. And then a green 2 that trades above the green 1. That will be when I set my stop loss, leave my screen and check every 20 minutes to update the stop loss.

I wish this was live-streamed. I just request access to TradingView's beta streaming service. So next time we can do this live :)

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Actually I just realized that this is not a green-1. It's a red-1 candle. So it is still not that relieving. It is also a reminder that the drop was so strong that we're still not in the clear.

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When you're catching a knife in a short time frame like this, your adrenaline levels rise and it becomes harder to stick to your decisions. It takes practice. What's more is that if you did catch it successfully, we tend to want to exit too early to lock the profit and relieve ourselves of the pressure and the possibility of seeing those horrifying potential loss numbers again. Many traders including me would sell here just as the relief kicks in. This is very wrong. Only now you are starting to reap the benefits of your risk. Others are now starting to buy in after they saw some bullish move. You bought at the very bottom. So stick to your position, and simply raise the stop loss. Right now, this is where my stop loss is.

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LOL stop loss hit. Bitten by my own words of wisdom. Will look for re-entry.

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Unfortunately, the bullish momentum was not confirmed with a green 2 above the green 1. That's why we need to wait for a new momentum.

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Another problem is that we can't determine whether we're looking at a higher low or a lower high. So we can't identify a trend for today yet.

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I would love to see this ascending triangle play out. We would need a sudden surge in the last hour of today's session.

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Quick ideas:
1. Rising interest rates causes general fear in the equity market. General fear in is good for us, investors with conviction and focus on a handful of companies with real growth.
2. This drop is basically the market pricing certain factors in. Those factors are the expected effect of rising bond yields on liquidity moving from the equity market to the bond market. So they price that in and decide to sell some stocks and adjust. It's all speculation. And what's important to us is to realize that this drop is a fast-paced reaction to a sudden change in the environment. So it will not lead to a bear market. It is simply some price adjustment that wall street firms carry out and mostly agree on.
3. Higher interest rates are associated with higher corporate earnings. It's meant to cause a recovery of the economy as vaccination is taking place. 2021 will have higher earnings than previously anticipated.

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This is my pessimistic view.

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More ideas: Institutional investors are funny in the way they evaluate things. Right now, institutions are exiting SQ. Why? Because robot thinking. Higher rates => Borrowing is harder => Growth stocks will suffer => exit growth stocks.
Also, higher rates => banks are good! => Buy banks!
Never mind the cash flow of Square. Never mind the growth in user base or Bitcoin purchasing volume on the Cash app. Never mind the fact that Square does not even Need to borrow in order to grow! So my take on this is: screw institutions. They are heavily levered anyway. Hold your stocks without leverage and buy the dips.

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Oh and screw the expectation of 'guidance' in earnings reports! Apple and Tesla did not provide guidance! It's a silly idea anyway, especially for growth companies. Who would be able to tell how much revenue they will see in every single quarter? Real growth companies put their effort in making the product as good as possible, not in appeasing wall street dinosaur standards.

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Here is what I see.
1. The candle shape is neutral. It says we will stay below the channel for the next 2 to 3 days. The move back into the channel is not going to be easy and slow. That's what I think.
2. We hit and reversed off of the 83-day EMA. This has held many times in the past. We cannot pass through it downwards unless we hit some resistance above such as the bottom of the channel. The psychology behind that is the fearful investors who couldn't decide to pull the trigger and sell earlier are gonna come now at the first sign of recovery and sell.
3. I don't see any particular bearish signs.

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This is bullish. Gapping up, pin bar, closing inside channel. But it's nothing special to SQ. The entire market is up. We need to understand macro before we make any bets. Eitherway, we have our stop loss at $195. A more aggressive one is at $210. I could sell put options for that level, but I've never traded options.

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We are inside the channel. So its bottom acts as support. On top of that, as soon as this gap closes, it's an entry point. That's at $241.

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This drop is not due to Square fundamentals of course. If anything, fundamentals are more bullish than bearish. This is simply more fear and re-evaluation due to rising interest rates. It should be short-lived. So I believe we already hit the bottom for today at $242.57.

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OK we closed the gap. The bottom was not $242.57. so let's not rush to conclusions. But either way, this is a good entry point.

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Actually the gap was closed by the cent! The high of two trading days ago was $242.72. and the bottom of today so far is exactly $242.72. Would be awesome if this really remains the bottom for the rest of the day.

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Wow broke past previous high violently. Too much for my bold predictions. Let's see if it will reverse off the bottom of the channel. Then we can decide the net entry.

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Yes, it does look scary. But we still have our support in the 83-day EMA crossing with one of my magical untested Fib lines. It would look like a miracle if SQ did climb that Fib line like it did the previous ones, but I'm sticking with my trade. Manage your risk in accordance with your stop loss. Be safe.

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Reversal signs:
1. It touched my lowest expected $210 line which I drew on Feb 24 based on historical support and resistance.
2. A bullish pin bar followed by a green candle is certainly a relief.
3. RSI divergence.

Bearish to neutral signs:
we already broke below the 83-day EMA. We need to get back above it tonight.

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Let's break this channel that started on 2 Feb.

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SQ broke my $210 line with strong downward momentum almost reaching the bottom of the channel. Quickly approaching my initial stop loss of $195. Moment of truth quickly approaching.

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Reversal signs: A13 S13 candle. I wish it was a 9 as well.
bottom of channel. pin bar.

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We turned bearish again on the 10 minute chart. Of course we need to keep in mind that on the daily, we turned bearish today. Any reversal we see here is inter-day.

Trade closed: stop reached

A sad ending to a beautiful trade. Stop loss hit at $195.

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Haha typical. Hit my stop loss then go green XD. I'll keep watching the daily and I'll probably make a new idea if I find an opportunity for a trade. Otherwise, it's no trade for me right now.

TechNerdOmar

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TechNerdOmar

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