Interactive Investor

Chart of the week: a social media stock to buy?

10th May 2021 15:54

John Burford from interactive investor

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After drifting back from its February peak, there’s a chance of a new record high here. 

Snap these shares up?

Snap Inc (NYSE:SNAP) is one of the lesser social media giants, but I believe it is well worth a good look now that first-quarter results are now out and show excellent revenue and user growth. 

But of course, the Sword of Damocles hovering over all social media is the threat of regulatory clampdowns, particularly in the US and EU. And the perennial competitor for Snapchat is the market leader Facebook (NASDAQ:FB), which seems to never hold back on copying the most popular features of any competitor.

From the exuberant all-time high set in February at the $74 mark, the shares have been under considerable consolidation:

Past performance is not a guide to future performance.

The surge to the 22 February record high at $74 is my wave 3 and the a-b-c correction since then is a textbook wave 4 pattern. So long as that low at $47 holds, my outlook is for the shares to continue their rally to above the old high.

Here is a close-up of recent action:

Past performance is not a guide to future performance.

I have a textbook set-up for a strong wave 3 of 5 up that should take the shares to well above $74.

But - and there is always a 'but' – if tech shares experience a general selling phase as they extend into the outer reaches of valuations, then a hard break of the major support at $48 would send me scurrying back to the drawing board.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

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