Charts show Spotify shares could soon break out, Frank Cappelleri says
In monitoring potential large basing patterns over the last few weeks, Spotify has continued to pop up on our radar screens. Finally, after several weeks of percolating near the 540 area, it is trying to break out. Just this morning, SPOT reached its highest level since March 2026. As is clear, SPOT is now pushing through a large, multi-month cup-and-handle pattern. If we continue to see follow-through from the current area, the 651-upside target will remain in play. The handle of the pattern is relatively shallow, so from a trading perspective, placing a stop-loss slightly below its lower boundary near 512 provides a logical way to manage risk. SPOT is a Communication Services stock, and while it is not a member of the SPX, it is worth noting that the XLC Communication Services ETF has also been attempting to leverage its own multi-month bullish pattern. Thus, this is not entirely a stock-specific phenomenon. Continued improvement from the broader Communication Services sector would help SPOT’s prospects, as well. Looking at the weekly log-scale chart going back to 2021, it’s clear that the decline that started early last year petered out near the 50% retracement of the entire prior rally. While we didn’t see a strong rally effort immediately, holding near that retracement at least suggested that the downside action was becoming exhausted and helped set the stage for the breakout now taking shape. The weekly chart also shows that an even larger foundation has been built going back to early 2025, with SPOT now getting very close to the highs from earlier this year. Thus, if the current advance continues, it also could result in a breakout from this very large trading box. When a base of this size is finally leveraged, it can serve as a building block for a larger advance beyond the daily bullish pattern’s 651-upside target. Sticking with the weekly chart, here’s another view showing how the recent comeback has started to positively influence SPOT’s moving averages. The 13-week moving average in green is now overtaking the 26-week moving average (blue), while both are getting closer to the longer 40-week moving average (red). The faster lines already have started to curl higher, as well. We can see how a similar phenomenon took shape in late 2022 and early 2023, when SPOT was rallying from the extreme sell-off of the prior year. Momentum really started to build as those moving averages turned higher, with SPOT subsequently respecting them as support throughout much of the next three years. The next step would be to see those moving averages continue turning higher and once again begin acting as support going forward. Lastly, on the bottom panel, the 14-week RSI has moved back above the 50 zone for the first time since last summer, shortly before SPOT topped. It’s worth remembering that when the RSI pushed through 50 in early 2023, it remained above that threshold for almost the entire subsequent two-and-a-half-year advance. The bottom line is that numerous positive technical developments are now coming together for SPOT, beginning with the daily cup-and-handle breakout. If that breakout holds and follows through, the 651-upside target remains in play, while the improving longer-term weekly structure could eventually open the door to something considerably larger. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE 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.
