Spotify….the music app my daughter just can’t get enough of. Unfortunately, I can’t be bothered to sign up. The people on the app love it, but can they attract enough new subscribers to keep taking the stock higher?
Let’s review the technicals.
The PPO momentum indicator at the bottom just went negative in the last few days. A trend break on the PPO would be a sign of weakness since the December low. The purple shaded area compares the stock to the $SPX. This doesn’t seem to be holding the outperformance. I don’t expect a stock with headwinds of large competitors to underperform the $SPX and attract investors.
The drop in volume is also a problem. In the zoom panel, the stock continues to have below average volume.
Moving to the price panel, the $140 level is above the initial price on the first day of trading, but below that first day high. After watching the stock peak in August, the selloff was a 50% haircut. To only rally back to $160 when the $SPX index was able to get back to the previous highs, suggests more caution.
If the stock can’t rally off the 200-day moving average in green, the next level of support would be the uptrend line. The more the stock tests these levels that are below the original trading price, the weaker the conviction for investors to stay with the stock. $162 is a higher high and continues the uptrend $140 is the 200-day moving average $135 is trend line support
$130 was support in Feb, March, April and a level that was checked often.
$120 is the prior low
$100 is the selloff low and the lowest price for the stock.
If the stock breaks below the $130 level again, it would suggest to me that investors are starting to lose their conviction to hold this ‘growth’ stock. Even the biggest optimist would have to start to question the ability of the stock to attract enough new subscribers.
Good trading, Greg Schnell, CMT, MFTA