The Ole Excuse Versus Catalyst Conundrum for Snap

The action in Snapchat this week raises a fairly common conundrum in markets and trading: Whether an event or series of events function as an excuse for an overdue market move or, instead, whether they act as a catalyst to precipitate the move. 

SNAP was actually a name we were long last week, electing to sell into strength due to broad market conditions being dicey. In retrospect, the shaky broad market saved me from the Citi downgrade early this week, combined with "celebrities" like Kylie Jenner's recent tweet, which CNBC is reporting as being the proximate cause for Twitter bots uniting to accelerate today's plunge. 

First and foremost, let us take a step back and acknowledge that SNAP had a monstrous earnings move at the beginning of this month. We played it briefly on the long side due to the immediate post-earnings bull flag.

However, once broad market momentum became suspect it helped me avoid a harsh giveback.

But even if the broad market had remained firm, we still would have needed to remain vigilant given that SNAP could easily come back in and test its rising 20-day moving average (orange line on daily chart, below) which is a fairly short-term reference point, at any given time to keep latecomer longs honest. 

Now, just because SNAP has clearly lost the initial burst off the earnings 40%-plus rally does not mean the earnings move was all for naught. 

In fact, I would argue this Citi downgrade/layout design/Kylie Jenner news flow functions as more of an excuse than a catalyst for the stock to shake and bake its way back down to its 20-day. SNAPs 20-day is currently at $16.69 and rising up to price. If and when the stock gets there, I will take another look at a long. 

Regarding the layout issue, we have seen tons of griping about TWTR various moves over the years. But the reality is that if the market has already decided that SNAP and TWTR have bottomed and priced in enough of the bad news, then selloffs like these will be opportunities to take advantage of a new cycle in the stock. 

In other words, I am much more concerned as to whether SNAP can defend the area below $17 into dips than I am with this news flow and the initial dip itself.

More on the market in my usual Midday Video for Members.