Shorts Get Slammed After Square Stock Skyrockets On Q2 Earnings, Afterpay Acquisition

Shorts Get Slammed After Square Stock Skyrockets On Q2 Earnings, Afterpay Acquisition

Square, Inc. (SQ) was skyrocketing up over 10% on Monday after trading lower in the premarket session. On Sunday, the payment-focused fintech firm printed its second-quarter 2021 results and announced it had agreed to purchase Australian buy-now, pay-later company Afterpay (AFTPF) in an all-stock deal valued at $29 billion.

The company, founded by Twitter Inc (TWTR) CEO Jack Dorsey in 2009, reported sales of $4.68 billion, which came in short of the $4.99-billion consensus estimate. EPS of 66 cents beat the estimate of 30 cents.

The big move north on huge volume may have caused short sellers to cover their positions, which propelled the stock further. 74.23% of Square’s total 388.03-million-share float is held by institutions and 8.14% is held short, which equates to 31.75 million shares. The number has increased from 31.45 million in June.

The Square Chart

On Monday, Square’s stock busted straight up through two resistance levels at $248.90 and $260.81 and was working on regaining $274.37 as support. If the stock can close the day over the $274 level, it could make a run back toward its Feb. 16 all-time high of $283.19.

Although traders and investors were obviously impressed with Square’s results and acquisition news, for technical traders Square was poised to break bullishly from a bull flag pattern the stock had created.

Between July 19 and 23, Square’s stock moved over 18% higher, which created the pole of a bull flag. Between July 24 and 30, it consolidated about 8%, which created the flag of the pattern. The consolidation helped cool Square’s relative strength index (RSI), so despite Square soaring, its RSI was registering at about 65%. An RSI of over 70% would put Square into overbought territory, which could cause sellers to come in and force the stock into another period of consolidation.

Square is trading above the eight-day and 21-day exponential moving averages with the eight-day EMA trending above the 21-day EMA, both of which are bullish indicators. Square’s stock is also trading about 22% above the 200-day simple moving average, which indicates overall sentiment in the stock is bullish.

Bulls want to see Square close the day over the $274 level, which could give the stock a run up toward its previous all-time high. If big bullish volume can push Square up to make a new all-time high, there would be no resistance in the form of price history above.

Bears want to see Square’s stock reject its overhead resistance and for sellers to come in and knock the stock back down toward the $260 area. If Square were to lose the level as support, it could retrace down toward $248.90 before potentially bouncing.


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