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February 7 Chart of the Day - Snap Inc.

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Snap Inc., (SNAP) is all over the headlines today for reporting dismal earnings after the bell yesterday. 

Shares tanked roughly 35% in Wednesday morning trading from a little over $17 down to the $11.35 area, a day after the social media company missed revenue estimates and issued light guidance in its fiscal fourth-quarter earnings report.

We've been following their chart and will take a deeper dive into it's massive drop today.

Precision oriented price action technical analysis by far provides the best edges and most setups for traders across the markets so that's what we use for the basis of our reviews.

Once a Wall Street darling we can see on the monthly chart that price is far from its $83.34 all time high (ATH) set a little over two years ago.  In fact, price had fallen all the way back down in the single digits before attempting to rise again.  

Down on the weekly level is where we spent most of our analysis ahead of earnings.

Before the earnings announcement we can see that price had more than doubled during the last year from $7.89 to just shy of $18 just before the holidays.

Since then price had started making a series of lower highs and lower lows (a down trend) and had been bouncing around a support and resistance level at $16.54.

Also on this chart we placed implied levels that the market was anticipating in either direction by this Friday.  To the upside we marked $21 and to the downside we marked $13.70 as potential targets.

We derived these levels by using the cost for the at the money straddle and adding it to the current price on Tuesday to get the upper target and subtracting the cost to arrive at the lower target.  This is a common technique used by Wall Street and retail option traders when creating their trade plans for earnings.

We also used Fibonacci levels to help identify potential pull back levels if price were to drop.

It's not uncommon for us to actually trade current or previous featured Charts of the Day.  And in this instance we believed the market sentiment was back to the downside.

So before the closing bell on Tuesday prior to the earnings announcement we purchased an undisclosed number of $17 puts because we believed that price could reach the lower earnings target boundary.

Not only did price reach the lower earnings target boundary, it reached the Fibonacci reversal zone in after hours trading that we had identified immediately after the earnings were announced.

Upon the opening bell today we locked in profits by closing 2/3 of our position and then once price reached the 61% retracement we closed the balance of the position.

Note: not all earnings trades go quite like this but when they do it makes for a great day!

ChartPros provides the exact methods in its courses to create charts like this with the most precise and accurate levels from which investors and traders can formulate their respective trade plans.

The best part of that is all the necessary price action tools are native to every charting platform.

So what's next? 

We don't make predictions...

Nobody knows for sure but using these 5 price action tools traders and investors can develop levels of interest in both directions.

  1. Support/Resistance
  2. Trend
  3. Fibonacci 
  4. Supply/Demand Zones,
  5. Change Control Zones

Take a look at the charts and let us know what you think.  

We'd like to hear from you in the comments sections.

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