Software stock forming a 'big base breakout' that heralds more gains ahead, according to the charts

Published Thu, May 9 202412:46 PM EDT

Investors pushed Squarespace Inc. (SQSP) higher to retest its April high after the company raised guidance for 2024. But the real story from a technical perspective is that this week's move appears to complete a "big base breakout" pattern — a sign of potentially much greater gains in the coming months. The weekly chart shows that after the May 2021 IPO at $50, the stock quickly jumped to its eventual peak at around $65. From there, Squarespace pounded out a fairly consistent downtrend, eventually reaching a low around $14.40 in May 2022. Almost a year later, in April 2023, the stock had recovered back to around $33, a level which coincided with a 38.2% Fibonacci retracement based on the 2021-2022 selloff. This resistance level continued to hold, with subsequent peaks through the end of 2022 and into 2023 all hitting this same price point before rebounding lower. In March of this year, SQSP finally broke above this resistance level around $33.70, which then became a support level in late April. This demonstrates a technical analysis concept called "polarity", where an established resistance level is broken to the upside, and then becomes support on a retest of the breakout level. 'Big base breakout' The daily chart shows how often this $33-34 range was tested all through 2023 and into early 2024. One of the key features of a "big base breakout" is a frequent test of the upper end of the trading range. The more that level of resistance is tested, the more meaningful the eventual breakout becomes. As legendary technical analyst Alan Shaw famously stated, "The broader the base, the higher in space." So what sort of upside objectives can we calculate, given the basing pattern we've experienced over the last 12 months? The conventional approach to this type of price pattern is the take the height of the pattern, and then project that distance from the breakout level. So using a range of around $27 to $34 for SQSP, that would imply a minimum upside objective around $41, a level not seen since November 2021. The 61.8% Fibonacci retracement based on the 2021-2022 bear phase would suggest further resistance around $45.60, which would mean another 20% gain beyond current levels. For now, Squarespace sits above two upward-sloping moving averages, and the RSI indicator shows a clear positive momentum structure so far in 2024. As long as this stock continues to make higher lows with improving relative strength, SQSP may indeed deserve a second look for investors. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.