How to Trade Snowflake on Earnings if It Clears Resistance

Snowflake opened lower after a mixed earnings report but has pared those losses. Here's the level it needs to clear to kickstart a larger rally.
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Snowflake  (SNOW) - Get Report was down just 1% in Thursday’s trading session. The decline came after the company’s mixed quarterly report.

But the controversy with this one started long before this week.

In the days leading up to Snowflake’s initial public offering, the company’s valuation continued to scream higher. Suddenly, Berkshire Hathaway  (BRK.A) - Get Report  (BRK.B) - Get Report and Salesforce  (CRM) - Get Report had taken a position in the stock ahead of its public debut, helping to drive the hype even higher.

Originally looking to price shares between $75 and $85, the IPO price eventually climbed all the way to $120. Shares then opened for trading at $245.

In February 2020, the company was valued at roughly $12.5 billion. By the time it opened for trading, it was worth almost $70 billion.

While the stock did rally for some time, it’s been under severe pressure lately. At this month’s low, Snowflake was down 57% from the highs.

Although the company beat on revenue expectations, it missed on earnings estimates. Revenue guidance for next quarter also came up short of analysts’ expectations. Still, the analysts are sticking with the stock

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Trading Snowflake

Daily chart of Snowflake stock.

Daily chart of Snowflake stock.

In after-hours trading on Wednesday evening, Snowflake stock fell as much as 8.4% on the report. So to be down just 1% isn’t that bad.

Shares are recovering off the lows, which is good to see. It’s also a positive that Snowflake is holding up above the 21-day and 50-day moving averages.

However, it’s not out of the woods yet. It continues to struggle with the 10-week moving average. If it can clear this measure, this week’s high and last week’s high around $236 to $237 is the next hurdle.

Above $237 and Snowflake could start to find some momentum. It would have me looking at the opening print from the IPO at $245, then the 21-week moving average.

If it can reclaim the 21-week moving average, then Snowflake stock may rally to the $265 to $275 area.

The downside also has levels to keep an eye on. Specifically, I’m watching Thursday’s low.

If the stock takes out that mark, it will have lost the 50-day moving average and cemented some of these measures as more stout resistance (like the 10-week moving average and $236).

On a break of the 21-day moving average, it’s possible that Snowflake declines to the $200 area.

For now, bulls are stepping up and they're seeing solid price action on a recovery from bad news. But we need to see that momentum build for it to be meaningful.