Shares of Match Group (MTCH) - Get Match Group, Inc. Report jumped last Thursday after Google announced it would cut fees it charges for third-party subscription applications in its Google Play Store, a significant cost for the dating app company.
Match group saw its share price surge from below $160 to nearly $180 on the news. Shares have given up most of those gains since, but remain above where they were before the move.
Two days before the surge, Real Money’s Tim Collins noted that chart action suggested something was coming.
“Match Group is sitting on big breakout potential,” Collins wrote at the time. “[W]e can see an inverse head-and-shoulders pattern [in the weekly chart], an explosive play when they work.”
An inverse head and shoulders pattern is one in which the stock’s chart shows a shallow dip, followed by a large dip, followed by another shallow dip. The two modest declines make up the “shoulders,” while the large trough in the middle makes up the “head.” (In an ordinary, rather than inverse, head and shoulders pattern the head is a significant rise rather than a large dip.) Each time the price declines it tends to come back up to around the same price point, called the “neckline.”
Investors see this as a very bullish indicator. While the price of the stock may fluctuate up and down several times, each time it returns to this base point (again, the neckline). After the third dip, when the stock returns to its base point it typically stages a breakout and tends to just keep on going up.
In the case of Match Group “With the neckline running just above $165, we're still a solid $4 below the breakout trigger. That's not a lot to ask, but it is still an ask," Collins wrote.
Ahead of last Thursday’s pop, Collins saw “a breakout target around $195 per share. That takes the difference between the head and the neckline and adds it to the breakout trigger of $165. Odds are I would be gunning for $200, given how traders love round numbers. This also means a failed shoulder would target us falling back into the $135-$140. Logically this makes sense, as that has been the low support level during 2021.”
He added that “Earnings for the company come on Nov. 2 after the close, so keep that in mind if you enter a position either long or short on a trigger. I'm eyeing the upside breakout as a play, but I want to wait for a move above resistance before taking action. This is certainly one to keep on the radar.”