Square is about to report earnings. Here's how to play it

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Square is on a tear.

The payment services company has rocketed more than 40 percent higher just this year, and is up a head-spinning 780 percent from its initial public offering price in late 2015.

Ahead of its earnings out after the bell Wednesday, Blue Line Futures President Bill Baruch sees a technically bullish pattern forming.

“There’s room to run here, and what I’m watching most closely is you have the 50-day moving average sneaking up on the 200. Looks like it’s going to cross over and give you the golden cross and provide further bullish momentum,” Baruch said Wednesday on CNBC’s “Trading Nation.”

A golden cross is formed when a shorter-term moving average such as the 50-day moves above a longer-term trend line such as the 200 day. The technical move suggests accelerating bullish momentum.

“What stands out most is the ascending triangle, which it is trying to break out above,” said Baruch. “The close above there is also very bullish.”

Shares of Square are sitting at the top line of that ascending triangle pattern at $79. A move above signals a breakout from a consolidation pattern.

“I like being long Square barring a disastrous earnings report later today,” added Baruch.

Stacey Gilbert, head of derivatives strategy at Susquehanna, said options activity supports a more bullish lean in the market.

“A majority of the flow has been call buyers, but I actually think a lot of these call buyers are those that are afraid to come to the party too late, don’t want that downside exposure, but certainly don’t want to miss out, to Bill’s point, on a breakout on the upside here,” Gilbert said Wednesday on “Trading Nation.”

However, Gilbert and Susquehanna analyst James Friedman have a more cautious view on the stock. The firm has a hold rating and a $77 price target, more than 2 percent below Square’s current price.

“It is a hot space, and there is increased competition. If you look at a name like Clover from First Data, this is competition that’s coming into this space that does make us concerned for the longer term,” added Gilbert. “Yes, the concept is great, but we do have some caution around it.”

Square has an average overweight rating and $79.59 price target, according to FactSet estimates. Analysts anticipate fourth-quarter earnings to rise by 62 percent from a year earlier and 2018 earnings growth of 70 percent. Quarterly and yearly sales should rise by 60 percent.

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