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Tales of a Technician: How Pinterest Found a Bottom

April 4, 2022

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Tales of a Technician: How Pinterest Found a Bottom

Pinterest (PINS) presents a perfect case study on how downtrends finally bottom. Of course, there’s variation between examples and not every bottom follows the same script. But, I’m finding Pinterest’s behavior over the past month to be a prime case study.

The tech stock is up over 10% today on above-average volume. It’s completing a confirming the recent bottoming action. Let’s see how we got here.

First, PINS stock runs with the ARKK crowd. We’re talking high growth stocks that became richly valued in the wake of the pandemic. It’s gotten utterly smashed over the past year falling as much as 80%. But unlike many of the so-called “underbelly” stocks, Pinterest actually makes money.

Bottoming Signs

Let’s start with the five classic signs that a downtrend is bottoming.

  • One: Slowing Momentum (Lower pivot low but with distance compressing. Usually confirmed by RSI divergence)
  • Two: Double Bottom (Equal pivot low showing buyers are defending old support)
  • Three: Double Top (Equal pivot high showing we interrupted the previous pattern of lower pivot highs)
  • Four: Inverted Head and Shoulders (Higher pivot low showing buyers swarmed even before prices fell to the prior pivot low)
  • Five: Resistance Break (confirmation and completion of bottoming action)

Pinterest stock exhibited signs of all five. Here’s the chart.

$PINS bottoming signs

Let’s break down each one.

#1: Distance between the pivot lows

First, the distance between the pivot lows started to compress, resulting in a bullish divergence signal from the RSI. Slowing momentum by itself isn’t a reason to buy. It’s what came after that mattered.

#2: Support level

Second, we finally found a support level at $22 that held on multiple tests. This brought stability to the trend and allowed the 20-day moving average to start flattening out.

#3: Pivot high

Third, rather than the next bounce resulting in yet another lower pivot high, buyers pressed their bets and delivered an equal pivot high. This was a change in character given that we were in a pattern of lower highs for months beforehand.

#4: Higher pivot low

Fourth, the next selloff was gobbled up quickly resulting in a higher pivot low. The first one, mind you, in months.

#5: Prices above horizontal resistance

Fifth, Monday’s 10+% rally sealed the deal by carrying prices above horizontal resistance and the declining 50-day moving average.

This is the best Pinterest has looked in ages. It doesn’t mean it will go straight up from here. It does mean buyers have more wind at their back than we’ve seen in a year.

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