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Key Takeaways
- AppLovin shares soared Thursday after the software company’s results and outlook topped Wall Street expectations.
- The stock staged a breakaway gap Thursday on the highest trading volume since August, signaling strong buying conviction from larger market participants.
- Bars Pattern analysis indicates that AppLovin shares may trend higher to around $360 in a move that may play out until late March next year.
- Investors should watch key support levels on the stock’s chart around $228 and $172.
AppLovin (APP) shares are in the spotlight after soaring Thursday following the release of better-than-expected results and a rosy outlook from the company, which benefitted from higher digital advertising spending on its artificial intelligence-powered advertising platform.
The company, which offers software products to assist app developers market, monetize and analyze their apps, reported a 66% increase in its software revenue in the quarter, driven by AI enhancements to its AXON platform that enabled advertising partners to spend at a greater scale.
AppLovin shares rose 46% to $246.53 on Thursday. The stock has surged more than six-fold since the start of the year through Thursday’s close, making it 2024’s best performing technology stock that has a market capitalization of $5 billion or more.
Below, we take a closer look at the technicals on AppLovin’s chart and identify important price levels to watch out for.
Earnings-Driven Breakaway Gap
Since retracing to the closely watched 200-day moving average in early August, AppLovin shares have trended sharply higher, with the price staging a breakaway gap after the company’s better-than-expected quarterly report.
Importantly, Thursday’s earnings-fueled rally occurred on the highest trading volume since August last year, signaling strong buying conviction from larger market participants, such as asset managers and hedge funds.
Moreover, the relative strength index (RSI) confirms bullish price momentum with a reading just below 90, but also flashes heavily overbought conditions in the stock that could lead to short-term profit-taking.
Let’s use technical analysis to predict how the stock’s current uptrend may play out and also identify key support levels to watch during declines.
Bars Pattern Analysis
To project a potential upside target, we can use a bars pattern, a technique that uses historical price trends on the chart to predict future moves.
In this case, we take the stock’s trend higher from February to July, which also followed a breakaway earnings gap, and reposition it from today’s low. This predicts a potential move to around $360, about 45% above Thursday’s closing price.
It’s also worth pointing out that the prior trend selected played out over 96 trading days before a meaningful pullback in the stock, indicating the current bullish move may continue until late March next year if price history rhymes.
Key Support Levels to Watch
During dips, investors should initially monitor the $228 level near Thursday’s low. A failure by bulls to defend this area could potentially lead to a fill of the stock’s breakaway gap.
If a gap fill eventuates, the next lower level to focus on sits around $172, a location on the chart where the shares may attract buying interest near a series of prices positioned around the late October peak.
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As of the date this article was written, the author does not own any of the above securities.