Think Snapchat (SNAP) is finally down at a cheap price? Not likely…but that doesn’t mean it’s not right to buy. (May 12, 2017)

Snapchat ( NYSE:SNAP ), or as I call it, Snap Twit. They reported earnings that, lets just say, were less than stellar. But the stock gapped up on Friday and then has traded up. So I think a lot of this was probably short covering. But here is the important thing: The bulls are defending this $18.00 level. I don’t know why they keep talking about the IPO price of $17.00. I know to those big funds who got allocations, they bought it at $17.00, but the stock has never TRADED at $17.00. You see David Tepper, and a couple of these other hedge funds that say, “Oh they really love Snapchat.” My bet is, in their next filing, which doesn’t happen for a while, you are going to see that they have actually SOLD a bunch of Snapchat ( NYSE:SNAP ) stock.

If you get it at $17.00 and then the stock ramps up to $26.00, $27.00, aren’t you going to sell this unless it is restricted? I don’t know the status of that. All I am saying is, that all of these bulls on Snapchat ( NYSE:SNAP ), I think they are kind of talking their book. But with that said I think you are NUTS to be shorting Snapchat ( NYSE:SNAP ) here. Because the stock DID gap way down and now it is on the way up, we will look at the hourly chart here. I think this stock can move up through 20.00, 20.50, maybe 21.00, another 10 percent or so is the way I would look at this.

If the stock breaks out above 19.50 (this is a long time ago) I don’t see any real resistance here at prior support because of all this massive volume. Anybody who bought here is probably freaking out and sold here. Or they won’t be selling. But I think you can get another 10 or 15 percent on this stock just as a trade. The thing is, you buy the stock here, if the stock starts trading back below, I would say 18.50, then you don’t want to be long this stock because it it so oversold.

Look at where it gapped in relation to these Bollinger Bands, it didn’t even trade back inside on an entire day. That is kind of rare. Usually you are going to see a stock, if it snaps one way it is going to come back and at least go inside these two standard deviation Bollinger Bands, which are supposed to contain most of the price action. Then it pops up, now it is closing above that level. I think what you are going to see is, more follow-on buyers into this week. This is not a value stock. I have seen people making that claim, “Oh, if it falls back now I can buy it because it has got a good valuation.” Seriously, stop and think about this for a minute, how can you value a company that has reported one time and had an abysmal report?

My point is, how do you know the stock, at $18.00, is cheap? It might be super, super expensive and the stock trades down to $8.00. Or it might absolutely be cheap and the stock trades up to $28.00. We just don’t know, because you don’t have enough information about the company. And on the conference call the CEO of this, I don’t know the guys name, but he was just ridiculous. So treat this as a CHART trade, not as a value plate. Don’t listen to anybody talking their book. You own this stock. If it falls back below 18.50 you DON’T want to own it. You are probably going to make maybe 10 or 15 percent on the upside, we had a similar thing on Commscope Holding ( NASDAQ:COMM ); when a stock trades back like this it is going to snapback, it is just the old rubber band effect, nothing more than that. I think that is nothing more than Snapchat ( NYSE:SNAP ) at this point

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