Square’s in a bear market, but here’s why the charts suggest it’s still a buy

Square is trading in a bear market, but if the charts are any indication, now could be the perfect time to buy the high-flying payment stock.

Shares of Square rallied more than 4 percent Wednesday morning after CEO Jack Dorsey tweeted that bitcoin is coming to "a lot more" users of Square Cash, which allows users to make business and personal payments. Despite the boost, the stock is still down more than 20 percent from its late November high. Rich Ross of Evercore ISI says there are two charts that point to new highs for the stock.

First, Ross pointed out that every time the stock has fallen to its 50-day moving average, it has bounced back and rallied.

"The 50-day moving average has worked every time over the past 12 months to define support for the stock," he said Tuesday in a "Trading Nation" segment on CNBC's "Power Lunch." "And you can see RSI has now been as oversold as it has been in prior troughs. So we're a buyer in the short term." Technicians often refer to a stock's RSI, or relative strength, as an indication of momentum.

For Ross, the longer-term chart looks even better.

"The stock hasn't been around all that long, but that 10-week moving average comes in right around that 50-day and it provides similar support within the context of a very strong impulsive uptrend," he said.

As for entering a bear market, Ross doesn't see anything to be worried about given how far the stock has surged.

"Keep in mind the stock is up 500 percent over the last 18 months, so a 27 percent pullback is what you should expect with gains of that magnitude," he said.

Gina Sanchez, CEO of Chantico Global, also sees more upside for Square based on one big event out of Washington: the tax bill.

"The main area that Square plays in is small and midsize businesses, that is a positive story, and I think that that fundamentally could continue," she said on "Power Lunch." "You should watch the tax bill, because the tax bill should benefit these small and midsize businesses. Therefore, you could see that translate into continued gains for growth."

However, Sanchez notes that since a lot of Square's growth has been tethered to bitcoin, which has been surging but is still highly volatile, a reversal in bitcoin could also hurt the stock. Plus, Square is still an expensive stock, and as Sanchez points out is "trading at more than double its main competitor, which is PayPal."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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