Affirm Rose Some 25% in the Past Week. Can Those Gains Hold?

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“Buy Now, Pay Later" company Affirm Holdings AFRM has gained some 25% in the roughly one week since reporting fiscal Q4 results -- even though the fintech actually lost money during the period. What do fundamental and technical analysis say might happen next?

Let’s take a look:

Fundamental Analysis

Affirm’s stock had been under pressure for some eight months when the company reported about a week ago (Aug. 28) that it saw red ink in the three months ended June 30.

Affirm recorded a $0.14-per-share loss during the period, but that was about $0.30 smaller than the Street had expected. Meanwhile, revenue grew 47.9% year over year to $659.18 million, which beat analyst forecasts as well.

Forward guidance didn’t appear bad, free cash flow remained positive and the company’s balance sheet seemed solid. Affirm does have $6.575 billion in longer-term debt on the books that the company will ultimately have to deal with, but that’s not today's or even this year's problem.

All of that combined to push AFRM’s stock price up nearly 40% last Thursday and Friday – gains that have mostly held as of this writing even though the broad market (and Affirm) saw a pullback this past Tuesday.

Technical Analysis

Now let's take a look at Affirm’s charts as of Wednesday morning (Sept. 4), starting with a chart showing the stock over the past several months:

Readers will note that a “falling wedge” pattern dominated Affirm’s chart from February up until August. That’s historically a pattern of bullish reversal.

It's safe to say that after already starting to rise in early August, Affirm experienced an acceleration of that reversal in response to last week’s earnings release.

But from there, the stock’s chart gets busy.

Affirm’s recent gap-up is denoted with a purple circle in the chart above. What do we know about unfilled gaps? There’s an old saying that “unfilled gaps don't always fill, but they usually do." That would be a bearish take.

Meanwhile, AFRM’s Relative Strength Index (the gray line at the top of the chart above) has suddenly moved into overbought territory.

But conversely, the stock’s daily Moving Average Convergence/Divergence indicator -- or “MACD,” marked with black and gold lines at the bottom of the chart above -- has taken on a sharply bullish posture.

Affirm’s 12-Day Exponential Moving Average (the black line) has risen above Affirm’s 26-Day EMA (the gold line), with both of them in positive territory. That’s historically a bullish sign.

Also note that a histogram of Affirm’s 9-Day EMA (the blue bars at the chart’s bottom) has also risen above the zero bound. That’s traditionally a bullish sign as well, especially when seen in conjunction with the other two typically positive indicators.

Those are a lot of conflicting signals, so let's Zoom in on Affirm’s chart for just the past two months or so to see if we can get a better technical read on the stock:

This chart shows AFRM’s 200-Day Simple Moving Average (the red line above) at $34.87.

This looks like an important level, as the 200-Day SMA is historically the pivot point when a stock comes out of a falling-wedge pattern. Portfolio managers also traditionally add or reduce long-side exposure at a company’s 200-day line.

If AFRM retreats to the 200-day line from here, it could do so while filling in most of its gap and still avoiding contact with its 21-Day EMA (the green line above) and 50-Day SMA (the blue line).

Given the recent gap-up, I would not be surprised if Affirm attempts to fill that gap by testing the 200-Day SMA from above. Should that test fail, past precedence indicates it’s more than likely that the entire gap fills and a second test at the 50-Day SMA line sets up.

However, should AFRM manage to hold its 200-Day SMA, that would traditionally be a bullish sign.

(At the time of this writing, Moomoo Markets Commentator Stephen Guilfoyle had no position in AFRM.)

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