Trader's Daily Notebook: Will Snapchat Follow Facebook's Path?

 | May 11, 2017 | 7:00 AM EDT
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Wednesday's regular-session E-Mini S&P 500 futures (Es) auction turned out to be an inside day, where price failed to break outside the prior session's range. Volume came in around 820,000 contracts, and the range hit 7.75 handles. The bottom line is price is still holding above the upper 2380s (a pivotal area discussed over the past few days), and we're still closing above all short and intermediate timeframe moving averages. Price momentum may be nonexistent, but responsive buyers remain active and motivated any time price displays even an inkling of weakness. 

Daily S&P 500 Futures Volume Profile

Several readers asked if I had any thoughts on last night's collapse in shares of Snapchat (SNAP) , so here goes. I'm not a Snapchat user. Truth be told, I know next to nothing about the technology or service. Unfortunately, I'm not a Facebook (FB) aficionado either. And frankly, I never thought Facebook would evolve into such a technological powerhouse. In a nutshell, I am not a visionary when it comes to social media. So while many may be able to say they spotted the cracks in Snapchat's business model early on, I'm unable to make that claim. On the plus side, I've got my charts. And they do a pretty good job at showing supply-and-demand imbalances. (Facebook is part of TheStreet's Action Alerts PLUS portfolio.) 

Facebook (FB) -- Daily

As many of you probably recall, Facebook came public on May 18, 2012, at a price of $38 (though the first trade went off at $42.05). The high print on the stock's initial day of trading was $45 (see chart above). Unfortunately, demand was nowhere near as strong as many in the market expected, and the stock fell to pieces over the ensuing three months. Anyone allocated shares at the $38 price didn't see their position close in the green (after day one) until early August 2013. 

Facebook began trading above the $45 high print from the IPO day in mid-September 2013, and aside from a two-day hiccup in late November 2013, has only traded higher from that point on. The bottom line is we want to be bullish on new issues where they're trading at all-time highs because there's no legacy supply issues. 

Snapchat (SNAP) -- Daily

I have no idea where Snapchat will be trading in the months and years ahead. And I won't for a minute make the argument that Snapchat has the potential to be the next Facebook. I will, however, suggest traders consider how Facebook traded after its fall from grace, and make a game plan for how and where it might make sense to begin buying shares of Snapchat. 

In my view, the easiest approach to trading or investing in Snapchat going forward is to draw a line at $29.44, which is the stock's highest traded price from its second day as a public company, and simply avoid the name until it closes above that figure. While there's no guarantee the stock will ever close above $29.44, I am confident if it occurs, demand will be outstripping supply and being long the stock will be the right trading decision. For now, unless you're a day timeframe scalper searching for a stock with above-average volume and volatility, I'd remove SNAP from your daily screens until it proves itself by trading to a new high.

Moving on to Thursday's Es auction, we'll continue to follow the same basic strategy we've discussed and adhered to over the past few days. As long as value remains above 2387 to 2388, responsive dip buyers will continue to get the benefit of the doubt. And our baseline expectation will be for an eventual grind toward 2400. 

15-Minute S&P 500 Futures Volume Profile

Traders expecting the current test of 2400 to fail should continue to remain on the sidelines until excess is triggered above that figure, or weakness beneath the upper 2380s begins to take hold. As long as value remains where it is, or moves higher, there's no discernible edge in selling the market short. 

Any trading or volume profile related questions can be posted in the comments section below, emailed to me at parkcityyeti@gmail.com or posted to my twitter feed @ByrneRWS 

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