SHOP Stock: The Party Has Started
2017 has begun, and my rock star pick, Shopify Inc (NYSE:SHOP) stock, is ready to rock and roll. The bullish price pattern that I described in my previous publication on Shopify stock has finally completed, and the bullish outcome that is suggested by the SHOP stock chart is now in development.
For the those not familiar with what I am talking about, I use a style of investment analysis that relies on past volume and price data in order to understand the direction the stock is moving in, and shed some light on what the future may bring. This style of investment analysis is known as technical analysis, and I have been using it to analyze investments for over a decade.
My bullish beliefs towards Shopify stock are based on the price action and signals that were generated on the Shop stock chart.
The following Shopify stock chart illustrates the bullish developments that are suggesting higher prices.
Chart courtesy of StockCharts.com
The Shopify stock chart illustrates perfection at its best, and this chart should be pasted into a textbook. It would list in the index under “a perfect example of bullish price action.” A stair step pattern is created by impulse waves, which advance the price, followed by consolidation waves, which digest the advance and set up the next impulse wave.
The impulse waves are highlighted in green and the consolidation waves are highlighted in purple. This is the exact price action that you want to see dominating a bullish trend. I wish every investment had such beautiful bullish price action, so I wouldn’t have to work to find them.
Each impulse wave on the chart above has given way to a consolidation wave, and this price action fuels the bullish trend. The breakout highlighted on the SHOP stock chart above suggests that a new impulse wave is in development, which means further progression towards higher prices.
The pattern is not the only signal that supports higher prices. In early May 2015, a golden cross was generated. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. This signal has a simple function in confirming that a bull market has begun.
The following Shopify stock chart illustrates the price action since inception.
Chart courtesy of StockCharts.com
Shopify stock made a new all-time high last week, and this sustained move above resistance is why I have been watching this name with such anticipation.
A new all-time high on a stock chart is a record that occurs in time and space. The longer it takes to make an all-time high, the more significant this feat becomes. SHOP stock has been trading around a previous high that set shortly after SHOP stock went public, and it has finally overtaken this level. The sky is now the limit, as no overhead resistance exists.
The SHOP stock chart can be used to project an initial price objective. This is done by taking the range that occurred below resistance and adding it, projecting the price above it. This creates the initial price objective of $62.00, but higher prices can manifest as resistance is nonexistent.
With a price objective now in hand, the next step is to define risk. The trend lines on the chart above are the dividing lines between a bullish and bearish trend, and I will be using these trend lines to define my risk.
The first trend line is horizontal and represents the previous level of resistance that has been broken. If SHOP stock would trade back below this trend line, I would have to question—and possibly step back from—my bullish view.
The second trend line, and now the more important one, is the uptrend line. This trend line is defined by the progression of the price that has taken SHOP stock to a new all-time high. This is similar to the horizontal trend line, but more stringent because, if Shopify stock ever closes below this trend line, it will indicate that the advance has concluded, and I would be stepping back from my bullish view and pursuing a bearish one.
Bottom Line on Shop Stock
Shopify stock has started 2017 with a bang by creating a new all-time high in its price. The SHOP stock chart suggests that this is only the beginning of a run that could make 2017 an epic year.