Square Showing Potential

While in South Beach in 2015, a friend and I ventured into a small convenience store to grab a drink to quench our thirst from the hot Miami heat. When I went to purchase my drink, I noticed the cashier using a little reader attached to an iPad to take my credit card payment. While I did not trade it at that point, I was intrigued by the possibilities Square was opening up. Since then, not only has Square become a dominant player in the payment sector, it also may be revolutionizing small-business banking.

Square has been producing consistently strong earnings and sales, particularly last quarter when it announced triple-digit earnings and sales growth. Recently, CEO Jack Dorsey announced that Square will be using bitcoin to decentralize financial services. The idea is for Square to become a bank for small businesses and potentially become "the bank of the future."

SQ was a big winner coming out of the 2020 bear market. After more than tripling from $80 to $270, SQ has been consolidating in a very large base throughout most of 2021. This is very similar to what we have been seeing recently with SNAP, CRWD, SHOP, and ROKU. While looking at Square's chart, a few things caught my eye. First, I like the large double bottom base that is forming on the weekly chart. The second low undercut major support around the 200-day moving average as well as the $200 price level. This effectively shook out weak hands as stops were hit once logical support areas were breached. In addition, there has been some constructive action near the $240 range with the 10-week and 40-week moving averages starting to turn up. I took a partial position in Square this week and am planning to polish out a full position if I can get another entry point at a higher price level. As always, I have a stop loss in place to protect myself should the trade turn against me.

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Full Disclosure: I currently own Square.

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