Don't Sweat the Square Stock Pullback

SQ tends to rally after coming into contact with its 160-day trendline

by Patrick Martin

Published on Nov 16, 2018 at 12:13 PM

Shares of Square Inc (NYSE:SQ) are 2% lower at $72.09 at last check, under pressure after the company's Chief Financial Officer (CFO) Sarah Friar announced she will be leaving today, a few weeks earlier than the expected. Square stock is now down more than 29% from its Oct. 1 record high of $101.14. But if history is any indicator, now may be the time to bet on the fintech stock's rebound.

According to Schaeffer's Senior Quantitative Analyst Rocky White, SQ is now within one standard deviation of the 160-day trendline, after a lengthy stretch above it. There have been two similar signals of this kind in the past three years, after which Square stock went on to average a one-month gain of 5.94% and was positive both times.

Daily Stock Chart SQ

Looking at options data shows calls are still heavily preferred. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SQ sports a top-heavy 10-day call/put volume ratio of 2.14, showing call buying has nearly doubled put buying the past two weeks.

However, skepticism has been ramping up outside of the options pits. While 16 of 29 brokerages maintain a "hold" or "strong sell" suggestion, short interest jumped 8.2% in the two most recent reporting periods to 27.49 million shares -- representing a healthy 8.9% of SQ stock's available float. Should the shares once again bounce off this bullish trendline, a round of upgrades and/or short covering could strengthen tailwinds.

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