SHOP Stock: The Countdown Begins
Shopify Inc (NYSE:SHOP) stock has effectively doubled off the lows that were set this year. Such performance is admired by some as they choose to chase high-performing stocks. Some choose to dismiss these stocks as they feel they missed the boat. Luckily, it is that time of year when share prices have a strong tendency to go on sale, essentially giving those who feel they missed the boat a second opportunity to acquire shares at prevailing levels.
I am not assuming that such an event will unfold; I am only insinuating that this time of year is known for such actions and, as a trader, I should be ready for such an outcome. If I were thinking about acquiring SHOP stock, I would be on the lookout for events that might give me an opportunity to acquire shares at a discount from today’s prevailing prices. September is historically the worst-performing month of the year, so if I was looking for a catalyst to give me what I seek, September may be just be my answer.
The following SHOP stock chart illustrates a key level of resistance that has halted further share appreciation.
Chart courtesy of StockCharts.com
Shopify stock is attempting to break out and make new all-time highs. New all-time highs are an extremely significant event. When SHOP stock can sustain a close above $43.00, this would mark a new all-time high and would signal to many traders that the sky is truly the limit.
Valuation aside, when stocks break out to new all-time highs, all the longs holding SHOP stock are in positive territory, and all the shorts who sold SHOP stock are in negative territory. This event creates the fuel necessary for explosive returns. Shareholders are less likely to sell a winning position, while short sellers need to cover at some point as the losses mount. I could easily see $60.00 as real possibility, but that can speculated about when the breakout is actually confirmed.
As is sits now, SHOP stock has been unable to break above this key level of resistance, and the testing of this level is now coinciding with a weak-performing month. If the selling in the major indices continues, it will be unlikely that Shopify stock would be able to break out until the indices finally gain some footing. I find it wise to look for price levels that will act as support if shares do decline.
The following chart illustrates levels of support for Shopify stock.
Chart courtesy of StockCharts.com
The first level of support lies at $40.00 as Shopify stock has been consolidating the recent run higher within a small tight range bound by $44.00 to the upside and $40.00 to the downside. If the selling persists, I personally believe this primary level of support will break down, and the larger trend will act as a logical area that may act to sustain the trend.
There are two parallel lines highlighted in green that define this trend. The pattern is known as a ascending channel. An ascending channel has two trend lines that define the upper and lower bounds. The share price oscillates between these two lines for as long as the trend permits.
SHOP stock has been confined to this channel from the moment the share price bottomed in February 2016. I would like to see this channel hold on any weakness but, if the channel does break, support is found at $32.00 and is highlighted in blue on the chart. This level must hold for me to retain my bullish bias.
The Bottom Line on SHOP stock
Given the seasonal factors and the expected weakness at this time of year, I believe that a selloff in Shopify stock would be an opportunity to acquire shares at key levels of support. If the ascending channel is maintained through this weak time of year, I will expect a strong finish in SHOP stock to end the year.