Divergence Chart Review, Part 2 – Snap, Inc

This is a follow up to the post “Divergence Chart Review – Snap, Inc”

Three trading days later and the price of SNAP is slowly falling and is down -1.44% this week.  This descent has caused the stochastic oscillator to turn down, indicating that the bullish price action is losing steam and reversing.  While it is a little early, this is beginning to confirm the divergence signal.

Looking at the chart below, you can see that the candles have made higher high’s from the end of August through today (red line with an upward slope).  The stochastic oscillator mirrors this price action into the dip, but when the price makes a higher high, the stochastic doesn’t cross back over the 80 line and is actually making a lower high.  This divergence is forming on multiple stochastic indicators, the (9,3) and the (14,3), strengthening the divergence signal.

The price action has formed a rising wedge, which is a bearish pattern.  We are looking for the stock to break through to the downside and increase in volume.

SNAP Chart 091317

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This is a High Probably Divergence Trade Because:

  • Stochastic divergence signals on multiple oscillators
  • Rising wedge chart pattern
  • At upper trend line on a falling channel

Trade Blueprint:

  • Watch the chart closely and look for divergence confirmation.
  • If divergence is confirmed, be prepared to enter a short position.
  • Set an entry price and more importantly, a stop price.
  • Set a price target.  You want to let your winners run, but you do not want to lose out on profits either. Have a plan.
  • Once divergence is confirmed, and entry target price is hit, submit your trade and stick to the plan.

It is important to look at all possibilities. Even though signals are telling us one thing, it doesn’t mean it is a certainty.  Many outside influences can affect stock prices at any given time, news, catastrophic weather, and market psychology are among the most influential.

Contact me on Twitter or StockTwits (@jbzstocks on both) if you have any questions or comments.

Trading involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. Opinions, market data, and recommendations are subject to change at any time. It is important to do your own research and analysis before entering a trade.  Any trade you make is at your own risk.  This page is for entertainment purposes only.