- Block (SQ) stock is back to pandemic base level.
- Investors patience and confidence are wearing thin.
- Those who panic now out of SQ stock will likely be wrong.
With Block (NYSE:SQ) having already lost 73% of its value since its 52-week high, there are plenty of questions on every investor’s mind. SQ stock is now 23% below its pre-pandemic high, and the bulls have not fond footing yet.
The current conditions on Wall Street are difficult to navigate. Up until recently companies have been reporting record results. Central banks and other government perks have been fueling the recover rally for years. However, there may be a shift starting, and investors are getting nervous.
Case in point, look at how violently the indices fell Monday after the close. This was simply because Snap (NYSE:SNAP) warned that they measured a marked deterioration in their business.
SQ Stock Has No Internal Problems
The company is not showing symptoms of things going wrong internally. The fundamentals are still what they were before, so it’s a healthy company. Therefore the investor instinct should be to find entry opportunities, not panic sell. The time for that has already passed. The good news for the bulls is that there is light at the end of the tunnel.
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SQ stock has the chasm of the 2020 lows just below it. Those were extremely unusual circumstances that should provide support. Unless we are expecting another global lock down, it would be unreasonable for SQ to fall further. Therefore, it is reasonable to expect a bounce if the markets stabilize a bit. SQ stock can enjoy a 20% rebound before it encounters resistance near $100 per share.
For now, active traders should remain tactical and sell rallies, but not in panic. After the rebound, a subsequent dip from $100 is buy-able. Of course this will require a slightly healthier equity market on Wall Street. Of late, risk appetite has fallen off a cliff, mainly because of the U.S. Federal Reserve rhetoric.
Their actions of rate hikes are not extreme, but their hawkish tone is. They’ve already committed to six months worth of quantitative tightening, regardless of how bad the data may get. Tomorrow we will get an update on the Q2 gross domestic product (GDP), and it should show weakness. At this rate, the Fed may be willing to combat inflation at the expense of killing the economy.
Starter Positions Make Sense
Source: Charts by TrendSpider
This ridiculous mindset is causing financial pain for investors. Until Wall Street feels at ease with the Fed intentions, the rallies will fade. As good a company as it is, Block stock will remain under threat. It is a leader in fintech, which is a thriving sector. The whole world is seeking to digitize financial transactions. Block is literally setting the trends for what’s to come next.
To sell the stock incessantly like the business is failing is wrong. Eventually investors will realize the value it has become. As for SQ stock, the company has had its earnings quadrupled since 2018. Moreover, the analyst average price target is double current levels. Its financial metrics do not show any degrading marks.
In other words there isn’t a fundamental reason to hate on the stock, especially from these low levels. Since there are so many extrinsic risk factors, investors would do well to only take starter positions. Holding SQ stock now will not likely turn into a major financial disaster in the long run. Going all in at once leaves the door open for drama. SQ makes for a better entry point than a panic sell. Time is the investor’s friend as Block leads the fintech revolution.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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