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Square Stock Is Sitting on the Cusp of a Major Breakout

Square stock is rallying hard after reports of its $29 billion all-stock deal to acquire Afterpay. Let's look at the charts for a potential breakout.

Had we written this Square  (SQ) - Get Square, Inc. Class A Report article a few hours ago, the title likely would have read something like “Buy the Dip in Square Stock?”

Shares of Square were trading lower in Monday’s premarket session, down about 5%. Now up more than 10% on the day and the stock is on the verge of a major potential breakout.

The move comes after the company's largest acquisition, as Square agreed to a $29 billion deal for Afterpay in an all-stock acquisition.

Square was scheduled to report earnings on Thursday, but the company also provided a quarterly update with the announcement

Revenue grew more than 140% year-over-year (compared against a dreadful COVID-19 backdrop in the same quarter a year ago), while earnings cruised past expectations.

Given Monday’s price action, the narrative has completely shifted within a few hours, as bulls scrambled from looking at potential support to eyeing a breakout. Let’s look at the chart.

Trading Square Stock

Daily chart of Square stock.

Daily chart of Square stock.

While the $240 to $250 area was previously working as resistance against Square stock, it has more recently acted as support.

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Not only does this area contain a key level and the 61.8% retracement, but it also includes the 21-day moving average.

Although Square stock was trading below this area in the premarket, when the opening bell sounded the stock not only held this level, but was able to rocket higher from it.

For now, that’s putting Square above downtrend resistance (blue line) and into a key resistance point near $275.

With that is the potential for a major breakout.

I wouldn’t be surprised if shares need to cool off a bit before pushing through this level. That’s particularly true if the broader market undergoes some type of mild correction.

However, as it stands, a push through $275 opens the door to the all-time high at $283.19, followed by a potential push up toward $300.

Investors using longer term targets may consider the 138.2% and 161.8% extensions should Square stock push above $300.

On the downside, should the $275 area remain as resistance, let’s see if shares can hold up over the July high near $267 and allow the 10-day moving average to catch up. Once it does, let’s see if this short-term moving average holds as support.

Otherwise, $250 may be back in play.