Coinbase: All Signs Point To Further Gains (Technical Analysis)

Summary Coinbase's stock has come a long way since 2022. Improving business economics have led to a much stronger company from a fundamental standpoint. These revenue and cost improvements, combined with a stronger underlying crypto market, have fueled COIN's recent rally. Today, we analyze COIN's technical situation, and assess whether or not the stock is primed to continue higher. Earnings are due later this week - barring a catastrophe & significant selloff, we think the technicals support higher prices, with $225 as the next bullish target. We re-iterate our "Buy" rating. Over the last year, we've written a number of bullish articles about Coinbase ( COIN ), which you can read here and here . The core of our thesis in the stock has been around the company's improving revenue base and cost structure, which have both been moving in the right direction. On the revenue front, Coinbase has managed to diversify its revenue sources to better handle downturns in the underlying crypto market. On the cost side, last year management slashed operating expenses, including a significant number of staff. Despite this, the company has continued to ship new products and build on existing momentum. While these developments are great and have begun to find their way to the bottom line in recent quarters, the rally in the stock as of late has largely been driven by a rally in the underlying crypto markets that Coinbase lists. Remember, more interest in crypto = more trading volume = more revenue for Coinbase. To us, this multiple expansion in the stock makes a lot of sense from a fundamental standpoint and appears long overdue as a result of the improvements made to the underlying business. However, new entrants may be concerned about the pricier entry multiple and potential rally exhaustion in the stock, as well as in the crypto market more broadly. Today, we thought it might be a good time to break down the technical state of things so you can get a better idea of whether or not the stock remains a buy, despite the recent rally. Sound good? Let's dive in. Big Picture When it comes to assessing a stock, getting a sense of the big picture from a price standpoint is key. Since listing, Coinbase has pretty much sunk like a rock; only recently finding its footing throughout 2023 and the start of 2024: TradingView For the longest time, COIN's stock traded largely in a range between ~$35 and ~$115: TradingView This is a big range, but when compared with the total range of prices since IPO, it appears to be somewhat of a 'left-for-dead' zone, where there wasn't significant enough interest in the equity to break above range highs and work back up to the heights of where the company traded at peak exuberance in 2021. This is no doubt due to the major washout events that occurred in crypto in 2022, including the Luna implosion and the collapse of FTX. Thus, it's no surprise that COIN's price remained rangebound, volatile, and trendless for this period. Check out this chart of COIN's ADX and VM, which show the level of trend (top) and the level of short-term volatility (bottom) in the stock: TradingView This was a rough time to be an investor in COIN, especially when you also take into account the number of significant SEC actions that caused shares to trade with a significant amount of headline risk. A New Frame However, as of late, we've observed a number of improvements to COIN's overall technical picture. First, the SEC's partial loss to Ripple in court about general security classification crypto more broadly has injected a large amount of optimism and confidence into the market, which has resulted in a higher level of observed trend in COIN stock (top), as well as lower short term realized volatility over time (bottom): TradingView Additionally, and perhaps more importantly, COIN's stock has recently broken out of its long-term range, trading above ~$115 for the first time in nearly 2 years: TradingView Zooming in a bit further, something incredibly bullish has happened on the weekly chart: TradingView In trading, ranges are typically broken by breakaway rallies that will send prices violently in one direction, as one side of the market gets washed out. You can see this above here in COIN stock in November and December of last year. However, once this breakout sentiment cools, it's not uncommon for prices to come back in and re-test the range level to see whether or not it 'holds'. In this case, prices have come back in to the $115 level and 'held'. This bullish re-test was capped off at the end of last week with an excellent looking candlestick pattern called a "Hammer". Hammers are created when prices open at a level, trade down, and then come up and trade above the opening price of the candle. This is exactly what happened here as of last Friday, which indicates that traders, and the market as a whole, have largely agreed that prices belong higher, not lower. When combined with a level like this, it's a huge technical sign that we can 'trust' the $115 level as a support for higher prices in the future. Additionally, from a weekly trend perspective, it's clear that COIN has regained its mojo, as we're seeing new green candles being printed on a bi-weekly basis, and with increasing amplitude: TradingView Clearly, things have changed when compared with the price action we saw in 2022, and we're currently prepared for much higher prices, targeting the next swing pivot point from 2021 at $225 per share: TradingView We've extended this line to illustrate this point above. Risks While the technical situation appears unequivocally bullish, there are some key risks to consider here, including earnings, which are due out in only a couple of days. We realize how risky it is for us to put out a 'bullish' article so close to an earnings release which could invalidate some of our thesis, so let us say the following: Everything we've talked about in this article, including all of the important price levels, indicator readings, and trend information, is inclusive of previous earnings reports. Our scale of analysis is 'large' enough to take big potential moves around earnings into account. Thus, we believe that there's a good chance that earnings won't invalidate our analysis here, and we're putting out this article to give a 'green light' to help prepare people as to where the stock could move over the next few quarters as the business progresses. From a trading perspective, it's perhaps best to wait to see how COIN's stock reacts to earnings before taking any actions that relate to our bullish view in this article. For example, if earnings come out and the stock trades back into the $35-$115 range, then that might make the technical picture for Coinbase significantly murkier. We don't think this is likely, but it could happen. However, if prices manage to stay above this zone, which we believe is far more likely, then our base case is that the bullish technical action should persist for some time to come, as we've laid out above. Summary While the upcoming earnings are key to be aware of, the big-picture trends regarding COIN stock remain largely bullish. Improving trend strength and bullish momentum, falling short-term volatility, and bullish price action / candle patterns all form our positive technical outlook for COIN stock. While it's possible that our projections (and price target around $225) could be invalidated as a result of a catastrophic earnings report, barring any serious selloff, we're expecting to see higher prices going forward into 2024 and 2025 on the back of the recent breakout from the year's long price base dead zone. Thus, we re-iterate our "Buy" rating for Coinbase. Stay safe out there!