Many bulls love this name for the long term, while shorts continue to believe its valuation is still too high. Admittedly, after declining more than 40% from its high in October 2018 and garnering another year's worth of growth, Square's valuation is much more reasonable.
While the selloff may give bulls some ammunition, the price action still sides with the bears. PayPal (PYPL) - Get Report , Visa (V) - Get Report and MasterCard (MA) - Get Report have also been struggling recently as the space comes under pressure.
On Friday, though, the bulls got some very encouraging price action. After giving up its gains and closing near the lows on Thursday, Square stock gapped lower on Friday before going positive on the day. Should the gains hold, it will show a decent reversal on the daily chart.
Moving forward, though, investors will need that upside momentum build. Otherwise, it may just be a temporary reversal. Let's look at a few charts.
Trading Square Stock
With Friday's rally, it's not hard to spot the reversal in Square stock. However, even more notable is the stock's breakdown below $60 and the 78.6% retracement.
Further, Square is caught in a nasty downtrend channel (blue lines) as it makes a series of lower highs and lower lows. It doesn't help that the 20-day moving average is acting as resistance as well.
What now? Bulls are desperately hoping that Friday's low holds strong and that the reversal sticks. In order to feel better about it, though, they'll need to see SQ stock reclaim $60 and the 78.6% retracement. Over the 20-day would be even better.
A look at the weekly chart also reveals some of Square stock's recent issues. Beyond breaking down below $60, the stock also failed to hold its 100-week moving average. This mark had been propping up SQ stock for the last four weeks before failing as support this week.
Downtrend resistance (blue line) can be seen squeezing shares lower as well.
If Square stock is able to build on its reversal next week, bulls would love to see shares reclaim the 100-week moving average. On the downside, a decline to $50 would be an attractive risk/reward spot for a bounce.
While it would still require a notable decline from current levels -- a fall of roughly 15% -- this level has proven significant over the past two years.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.