StoneCo Is Soaring Friday: Here’s How I’d Play the Stock

StoneCo Ltd. (STNE) has been in a downtrend since February 2021. The share price of this Cayman Islands-based financial technology solutions company operating in Brazil has slumped from over $90 to almost $8 in a matter of months.

However, shares of the Berkshire Hathaway-backed (BRK.A) (BRK.B) name gapped higher Friday, by some 40%, from Thursday’s close, following quarterly results, an analyst upgrade and reorganization news.

Let’s see what the charts suggest from here. 

In the daily bar chart of STNE, below, we can see that the shares have been in a punishing downtrend for months. Trading bounces have been few and weak. Prices have been extended (oversold) versus the negatively sloped 200-day moving average line for some time now — a sign of trouble, in my opinion. Prices have gapped higher Friday on very heavy turnover.

The daily On-Balance-Volume (OBV) line has turned upwards but it does not mitigate the months of weakness. The 12-day price momentum study does not show us a bullish divergence ahead of today’s gap.  

 

In the weekly Japanese candlestick chart of STNE, below, we are not finding reasons to be optimistic. The small real bodies in recent weeks may not be a sign of balance but rather a result of the scaling of the chart.

The OBV line has been weak for months and while the 12-week price momentum study has been improving it doesn’t make a strong case for purchase. 

 

In this daily Point and Figure chart of STNE, below, we can see a potential upside price target in the $24 area but there appears to be plenty of overhead resistance. 

Bottom-line strategy: Someone somewhere is probably writing up a positive story on StoneCo but from my experience I would avoid the long side of STNE as too much damage has been done.