Social media platform Snap (NYSE:SNAP) has been ignoring recent market weakness and is now poised for an explosive breakout to fresh all-time highs. Here’s a quick walk-through of why this hot trade setup may deserve a spot in your growth stock portfolio now.
Most stocks have sold off alongside of the major indices over the past several weeks.
However, several leading stocks bucked the trend by holding firmly near their recent highs, even as both the S&P 500 and NASDAQ Composite fell below support of their 50-day moving averages.
If a stock is so strong that it merely drifts sideways while most other stocks are falling, the stock has high relative strength to the broad market.
Not surprisingly, stocks with such relative strength are typically the first to rocket higher when the main market indexes eventually bounce.
Stocks with high relative strength are a key focus of the swing trade setups we look for in our nightly stock pick report.
Snap – A “base on base” with high relative strength
On Sept. 22, we alerted Wagner Daily subscribers that we were buying Snap in the Model Portfolio.
At the time, Snap had just rallied above the downtrend line of its current base of consolidation.
Higher volume confirmed the bullish advance.
On the daily chart below, notice how Snap has been holding firmly at its 50-day moving average (blue line)–even after the NASDAQ Composite gapped sharply below its 50-day MA on Sept. 20:
Notice the relative strength line (bottom of chart) moved to the top of is range ahead of the stock price, which is bullish.
This is because Snap has merely been drifting sideways while the S&P 500 has been trending lower over the past few weeks.
The longer-term weekly chart of Snap is also compelling.
As shown below, the current flat base formed near the high of the previous base, thereby creating a bullish chart pattern known as base on base:
The low of the current base is just 14% below the high, while the previous base was 35% deep.
We bought a partial position of Snap in the Wagner Daily model portfolio on Sept. 22, after the price broke above the downtrend line.
Now, we are planning to add to the position after Snap breaks out above the high of its base to a new all-time high.