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How to Trade Square at Record Highs Ahead of Earnings

Square stock is hitting new all-time highs ahead of earnings. Here's how to trade SQ stock once the results are out and shares are moving.

Square  (SQ) - Get Square, Inc. Class A Report is a favorite among growth investors, even though the stock has not traded all that well over the past few years.

Even at its 2020 highs before the coronavirus selloff, shares were still down more than 13% from the 2018 high. Amid the coronavirus selloff, shares shed almost 63%.

That’s nearly double the decline we saw in the Nasdaq and S&P 500, and far outpaced the 34% decline in PayPal  (PYPL) - Get PayPal Holdings Inc Report. Of course, PayPal continues to cruise higher, too.

Now, Square stock sits at an all-time high, hitting $137.80 in Tuesday’s trading session. With earnings on deck after the close on Wednesday, investors are anxious to see whether this name can continue even higher or if it’s in need of a pullback.

Let’s look at the charts.

Trading Square Stock

Daily chart of Square stock.

Daily chart of Square stock.

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The coronavirus has accelerated the way we use technology in payment processing -- be it in online shopping or via contactless terminals. In the case of Square, its Cash App has fueled considerable growth, as well.

Back in June when shares were first pushing through $100, I suggested that a rally up to the 161.8% extension at $121.19 could be in play. Despite a big move from the multi-year breakout at $85, shares kept on going, soon breaking out over $105.

Now over $130, the stock is well past the 161.8% extension.

If Square stock continues higher, let’s see if it can close above $142.17. That puts the stock above the two-times range extension and opens up even more upside. That could include $150, as well as a longer-term price target at the 261.8% extension near $176.

On the flip side, let’s take a moment to recognize that shares have soared more than $100 apiece, rallying over 300% from the lows. If Square stock pulls back, we need to get an idea of the kind of dip we’re dealing with.

If it’s shallow or muted, let’s see if it can hold the 20-day moving average and uptrend support (blue line). More attractive though may be a dip down to the 50-day moving average and 138.2% extension. To get there, Square stock would have to trade through the 161.8% extension near $121.

This will suck a lot of momentum out of the stock, but it will also get the correction out of its system and potentially allow for a rebound back to the highs.