Hindenburg Research is a New York-based firm that tries to identify troubled companies and profit by a price collapse. Shares of the digital payment company, Block, Inc. (SQ) are down sharply Thursday on the heels of a short or bearish report by Hindenburg that alleges fraud and other issues.
In my February 24 review of SQ, I wrote that "The two Point and Figure charts above currently suggest that SQ could correct down into the $66-$62 area. Another pullback could happen with weakness in the broader market averages. This weakness, should it develop, may be a buying opportunity. Risk to $55."
Shares of SQ have slumped to about $60 area in early trading Thursday, so let's check out the charts and indicators again.
In this daily bar chart of SQ, below, I can see that prices have gapped lower and below the bottoming 200-day moving average line. The trading volume is likely to be heavy today. The daily On-Balance-Volume (OBV) line has weakened this month and points to more aggressive selling before today's downside move. The Moving Average Convergence Divergence (MACD) oscillator is bearish now and has been weakening since early February.
In this weekly Japanese candlestick chart of SQ, below, we do not have the latest price action plotted but the chart is not encouraging. Prices have gapped below the 40-week moving average line. Potential chart support below $60 is being tested.
The weekly OBV line looks like it was peaking in March. The MACD oscillator has come back to the underside of the zero line. This week's price action is probably going to result in the MACD oscillator turning lower from here.
In this daily Point and Figure chart of SQ, below, I can see today's price movement with no price gap (this is unique to Point and Figure charts). The software now projects a downside price target in the $37 area.
In this weekly Point and Figure chart of SQ, below, I see a lower price target in the $31 area.
Bottom line strategy: In late February I anticipated SQ declining into the $66-$62 area but not at this speed and not based on this kind of news. Traders should defer purchases of SQ in light of this news and sharp price action. This could be an exhaustion gap or the start of a more serious decline. Hard to tell at this point in time.
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