Hey guys, to begin this analysis I'll direct you to the OBV at the bottom of my chart:
OBV: What is it?
Cumulative index of plus or minus volume days based on change of closing prices. It is calculated as a cumulative total:
(x) If price close is higher than the previous day, add the day’s volume.
(x) If price close is lower than the previous day, deduct the day’s volume.
The level of the OBV is irrelevant, you are looking for divergences/convergences; i.e., you're looking for the OBV and the price action to move in the same direction to confirm the trend, if not the trend is in questions.
OBV: Timing the top was easy
When I first purchased SQ I was going to swing it, however after looking further into the company's financials and growth prospects I recognized opportunity and decided to hold my shares. I will be adding 10-15 shares below $208 or call options if the price trends up again (will make a separate post)
On the OBV you can see three arrows, the green arrow is a confirmation (convergence): OBV trends upwards and reaches a new high and so does the price action. The two red arrows also show two new ATH's for SQ, however the OBV failed to confirm new highs twice. If you're a swing trader the first red arrow is when you sell, (red volume bar confirms this). The second red arrow is the actual peak and this is when both the price action and the OBV trend line broke and began a new down trend.
OBV: When will the downtrend reverse?
Now that both the price action and the OBV are in a downtrend I connected the tops of the OBV to make a trend line. This is how I will know the trend is reversing and I'll know to buy call options or shares:
(1) OBV trend line must be broken (i.e., broken to the upside)
(2) Volume must confirm the trend, I'm looking for a long green volume bar
(3) My momentum indicator (LongShort Bimex) must begin trending upwards and pass the -30 to -35 level (on high volume)
*(4) On the 1hr chart I'm looking for a long green candle or some sort of bullish reversal candle (morning star, dragonfly, and bullish tweezers)
**NOTE: Step 4 is unique to SQ's chart, I find the 1hr works best and the 3 candle patterns are quite common over the last 3 months***
Hint: The chart currently looks really nice, if we see a some bullish price action and large volume tomorrow I think the trend will begin to reverse!
SQ: What the heck is going on?!?
Please, do not fret if you own shares. The sky is not falling. Here's a little lesson on funds and money management:
When a fund dedicates capital to different assets classes, equities, and securities (namely seen by ETF's) they tend to determine the weight of each security by using formulas that'll maximize the return (Er), minimize the risk (Beta and STD), and ultimately maximize the Share Ratio: let's call this optimal portfolio Q*. When a stock such as SQ with a high beta and STD shoots up 277% YTD it becomes overweight within portfolio Q* (% terms). As a result of this overweight security--although the fund is making superior returns--portfolio Q* is no longer optimal anymore because the Beta and the STD of the portfolio have also increased. As a result, funds and ETFs must shave their positions of SQ in order to return back to equilibrium. Some other factors at play:
(x) SQ is a risky growth stock; except waves on the chart
(x) SQ is included in a lot of ETFs; ETFs are very strict with maintaining optimal weights
(x) one word: ALPHA! How does a fund make money? By seeking alpha! It sells off a portion of its best prospect to both hedge its exposure and realize a gain. ~Funds flirt with the market by showing off their alpha~
Note: Notice the long red volume bars every x hours, this is a clue that big money (funds) are selling off blocks.
SQ: What next?
Now, we wait. We need to wait until we begin seeing volume in favour of the bulls (see above), if you're losing hope here is a list of reasons to be bullish:
(x) COVID has accelerated the shift toward digital commerce
(x) February 2020: approximately 5% of Square sellers in the U.S. were cashless. By August: that figure had more than doubled to 13%
(x) First half of 2020: Cash App revenue totaled $1.73 billion. Nearly 4x what it generated during the same period in 2019
(x) Square recently launched on-Demand Pay for employees and Instant Payments for employers, which will allow customers to more effectively manage their cash flow
(x) Electronic payment growth is shifting overseas, and Square’s business model looks portable into international markets,
(x) Square has allowed Cash App customers to buy and sell bitcoin for some time, but they now began investing into bitcoin ($50m purchase)
So, just my last point: I will be a buyer between $198-208, more likely below $204 however
Hope you guys enjoyed this! :) as always, leave me a like if you did and I'd love to hear some thoughts
OBV: What is it?
Cumulative index of plus or minus volume days based on change of closing prices. It is calculated as a cumulative total:
(x) If price close is higher than the previous day, add the day’s volume.
(x) If price close is lower than the previous day, deduct the day’s volume.
The level of the OBV is irrelevant, you are looking for divergences/convergences; i.e., you're looking for the OBV and the price action to move in the same direction to confirm the trend, if not the trend is in questions.
OBV: Timing the top was easy
When I first purchased SQ I was going to swing it, however after looking further into the company's financials and growth prospects I recognized opportunity and decided to hold my shares. I will be adding 10-15 shares below $208 or call options if the price trends up again (will make a separate post)
On the OBV you can see three arrows, the green arrow is a confirmation (convergence): OBV trends upwards and reaches a new high and so does the price action. The two red arrows also show two new ATH's for SQ, however the OBV failed to confirm new highs twice. If you're a swing trader the first red arrow is when you sell, (red volume bar confirms this). The second red arrow is the actual peak and this is when both the price action and the OBV trend line broke and began a new down trend.
OBV: When will the downtrend reverse?
Now that both the price action and the OBV are in a downtrend I connected the tops of the OBV to make a trend line. This is how I will know the trend is reversing and I'll know to buy call options or shares:
(1) OBV trend line must be broken (i.e., broken to the upside)
(2) Volume must confirm the trend, I'm looking for a long green volume bar
(3) My momentum indicator (LongShort Bimex) must begin trending upwards and pass the -30 to -35 level (on high volume)
*(4) On the 1hr chart I'm looking for a long green candle or some sort of bullish reversal candle (morning star, dragonfly, and bullish tweezers)
**NOTE: Step 4 is unique to SQ's chart, I find the 1hr works best and the 3 candle patterns are quite common over the last 3 months***
Hint: The chart currently looks really nice, if we see a some bullish price action and large volume tomorrow I think the trend will begin to reverse!
SQ: What the heck is going on?!?
Please, do not fret if you own shares. The sky is not falling. Here's a little lesson on funds and money management:
When a fund dedicates capital to different assets classes, equities, and securities (namely seen by ETF's) they tend to determine the weight of each security by using formulas that'll maximize the return (Er), minimize the risk (Beta and STD), and ultimately maximize the Share Ratio: let's call this optimal portfolio Q*. When a stock such as SQ with a high beta and STD shoots up 277% YTD it becomes overweight within portfolio Q* (% terms). As a result of this overweight security--although the fund is making superior returns--portfolio Q* is no longer optimal anymore because the Beta and the STD of the portfolio have also increased. As a result, funds and ETFs must shave their positions of SQ in order to return back to equilibrium. Some other factors at play:
(x) SQ is a risky growth stock; except waves on the chart
(x) SQ is included in a lot of ETFs; ETFs are very strict with maintaining optimal weights
(x) one word: ALPHA! How does a fund make money? By seeking alpha! It sells off a portion of its best prospect to both hedge its exposure and realize a gain. ~Funds flirt with the market by showing off their alpha~
Note: Notice the long red volume bars every x hours, this is a clue that big money (funds) are selling off blocks.
SQ: What next?
Now, we wait. We need to wait until we begin seeing volume in favour of the bulls (see above), if you're losing hope here is a list of reasons to be bullish:
(x) COVID has accelerated the shift toward digital commerce
(x) February 2020: approximately 5% of Square sellers in the U.S. were cashless. By August: that figure had more than doubled to 13%
(x) First half of 2020: Cash App revenue totaled $1.73 billion. Nearly 4x what it generated during the same period in 2019
(x) Square recently launched on-Demand Pay for employees and Instant Payments for employers, which will allow customers to more effectively manage their cash flow
(x) Electronic payment growth is shifting overseas, and Square’s business model looks portable into international markets,
(x) Square has allowed Cash App customers to buy and sell bitcoin for some time, but they now began investing into bitcoin ($50m purchase)
So, just my last point: I will be a buyer between $198-208, more likely below $204 however
Hope you guys enjoyed this! :) as always, leave me a like if you did and I'd love to hear some thoughts