Can Spotify break its all-time high of $387? | Don’t ignore this chart!

Music streamer Spotify Technology (SPOT) is not a cheap stock. But the company might not be considered overvalued, despite its earnings being somewhat “unsettled” (pardon the pun) and into negative territory before last October.

Spotify’s performance has been remarkable over the past 16 months, with a steady upward trajectory and a 98.4 SCTR score.. It recently surpassed the highest level in 52 weeks, suggesting the possibility of continued growth.

The stock appeared in StockCharts’ new 52-week high search on Tuesday. If you have checked the stock summary on StockCharts, It also showed up in five other bullish scans on Tuesday, as shown below (all of which are great ways to find potential trading opportunities, by the way).

What’s the big news from Spotify?

Essentially, Spotify announced price increases for all of its plans, especially in the US, in an effort to increase profitability and cash flow. This represents a significant improvement in cash flow (the company is targeting $1 billion in free cash flow by the end of the year). Spotify’s gross profit also increased due to higher revenues and lower operating expenses.

However, an interesting story could be its audiobook bundling strategy and its future growth drivers through advertising and video monetization (imagine what the company can do in those areas). Despite not being cheap, SPOT has shown strong growth potential and analysts are generally bullish on the stock. (Deutsche Bank maintains its price target at $400, while other analysts expect a high of $485 by the end of next year.)

macro picture

What do you get when you combine technical know-how with fundamental contrarian speculation? Probably similar to the April-March 2023 breakout (see blue arrow on SPOT weekly chart below). At the time, Spotify had been experiencing negative profits for one year in a row.

Chart 1. Weekly chart from SPOTIFY. A technical breakout in March-April 2023 initiated an upward trend despite negative returns.

Those who waited for a significant improvement in Spotify revenue would have entered late October of that year (see green arrow). This corresponds to half the distance between the 2023 SPOT low and today’s high.

The blue dotted line at $387 represents Spotify’s all-time high. While this likely presents a resistance level for the stock, it is still below analysts’ high 2024 and 2025 price targets ($400 and $485, respectively).

Looking at SPOT’s daily chart below, you can see that if you wanted to buy on a strong breakout, Tuesday would have been the day to pull the trigger (either during the breakout or after the close).

Chart 2. SPOTIFY’s daily chart. The Chaikin Money Flow (CMF) indicator is above the zero line, indicating rising bullish momentum.

If you missed this and are looking for a second entry, you can wait for SPOT to decline towards its 50-day simple moving average (SMA).; See how closely you follow the 50-day SMA and whether traders view it as a support level. However, note that other indicators are showing mixed signals.

Difference Between Spotify Price and Money Flow Index (MFI) (See the red dashed line in the top panel) indicates near-term weakness. On a bullish note, Chaikin Money Flow (CMF) We present a scenario where momentum appears to return when Spotify outperforms its sectors (telecommunications, XLC) by 60%.

takeout

While buying breakouts above significant highs may be part of some traders’ strategy, others may be a little more hesitant because they are worried about buying the highs. Spotify poses this conundrum. Nonetheless, the fundamental target is still a long way off and if SPOT moves lower, the price is likely to find support at the 50-day SMA (which could potentially be a lucrative second entry for those who missed the first entry).

Additionally, SPOT’s earnings are just around the corner on July 23, before the markets open. Again, you can find this information and more in the StockCharts Symbol Summary for SPOT.

disclaimer: This blog is for educational purposes only and should not be construed as financial advice. You should not use any of our ideas and strategies without first evaluating your personal and financial situation or consulting a financial professional.