Afterpay Trending Strongly

Technicals | Oct 14 2020

This story features AFTERPAY LIMITED. For more info SHARE ANALYSIS: APT

Bottom Line 13/10/20

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: $65.31 / $55.30 / $47.09 
Resistance levels: 96.08

Technical Discussion

Reasons to be bullish:
→ Total value of merchandise sold (GMV) could double to $22b in FY21.
→ The company is heading into multiple new markets at the same time.
→ PayPal in the US has announced a similar product to Afterpay.
→ Has a large consumer and merchant network.
→ The strong balance sheet provides flexibility to step up investment.
→ Broken into new all-time highs.

A potential head & shoulders pattern was taking shape during our last review although it hasn’t proven to be significant. The pattern has been invalidated due to price continuing higher. The trend off the March lows has been nothing short of astounding. Up to today’s high price has gained over 1200%, as buyers continue to fall over themselves to get a piece of the action. Weakness a few weeks was triggered by an announcement. PayPal has introduced a similar product called “Pay in 4”. It’s obviously a big name and triggered some profit-taking in Afterpay ((APT)). However, once again buyers have taken back control.

Although there is no wave count on the chart, we have some good patterns to look at. A parabolic leg higher between March and July was followed by a healthy consolidation. As we often say, nothing goes up in a straight line indefinitely. However, in strong trending stocks like this you often see consolidation patterns as opposed to deeper retracements. The descending triangle as annotated on this chart set the stage for continued strength.

The aforementioned news regarding PayPal has resulted in another continuation pattern forming. On this occasion it appears to be a cup & handle. The cup is locked in, with today’s high attaining blue sky territory. However, the close was of the sessions highs. In an ideal world a short consolidation pattern will now form completing the handle. it should be the precursor for the next leg higher. The risk is that price continues higher immediately without getting the consolidation. More than feasible as buyers continue to scramble to jump on.

Trading Strategy

If you are looking for an exceptionally strong trending stock, APT is worth considering. The strategy is to buy following a push up through today’s high at $96.09. We’d like to see a sideways consolidation form a handle from here, so we’ll refrain from putting forward the protective stop. Use a trailing stop to manage the position. I’ll make a formal recommendation this evening.

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

This report may contain advice that has been prepared by The Chartist Pty Ltd (ABN 40 641 323 051). The Chartist Pty Ltd is a Corporate Authorised Representative (CAR No. 1282007) of Shartru Wealth Management Pty Ltd ABN 46 158 536 871, AFSL 422409. Any advice is considered general advice and has been prepared without taking into account your objectives, financial situation or needs. Because of that, before acting on this advice you should therefore consider the appropriateness of the advice having regard to your situation and your own objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. If the advice relates to the acquisition, or possible acquisition, of a product (other than a security e.g. a CFD) then the client should obtain the relevant Product Disclosure Document and consider it before making any decision about whether to acquire the product. Past performance is not a reliable indication of future performance. This material has been prepared based on information believed to be accurate at the time of publication. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information.

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CHARTS

APT

For more info SHARE ANALYSIS: APT - AFTERPAY LIMITED