SHOP Stock: Sometimes Waiting Is Better Than Chasing
My rock star top pick for 2017 continues to outperform. Shopify Inc (NYSE:SHOP) stock is up 147.87% year-to-date, and this stellar number is being generated as SHOP stock is currently forging a new all-time high. It is safe to say that Shopify stock is doing justice to its “rock star” label.
I am focusing on this investment once again because I want to outline a number of indicators that I am currently watching, and their implications.
The indications I am referring to are within the context of technical analysis, which is the method I employ to generate a view on a potential investment. This method of investment analysis is predicated on using historical price and volume data to speculate what the future may bring. As a result, my views have been generated using the Shopify stock chart.
The following stock chart illustrates the main reason why I labeled Shopify stock my rock star pick for 2017.
Chart courtesy of StockCharts.com
On December 29, 2016, I released a report titled “Shopify Inc: SHOP Stock Is a Rock Star Top Pick for 2017.” In that report, I expressed my inclination to believe that a large rally was commencing because the share price was setting up to make a move. That move would finally clear a level of resistance that was containing the stock price from advancing.
This level of resistance was defined by using the previous all-time high that was set shortly after SHOP stock went public. This level of price resistance contained the stock price from advancing beyond it for almost a two-year period before it was finally overcome. Once this level was finally broken, the stock price was free to appreciate.
Longstanding all-time highs, like this one specifically, generate powerful rallies for a number of reasons. There is no overhead resistance and, therefore, there is nothing to contain the price from advancing. The advance that follows is then fueled by bearish investors covering their short positions, and momentum investors chasing performance. These dynamics are responsible for explosive moves to the upside.
Breaking above a longstanding all-time high produces exceptional results, and some of the best-performing investments carry this exact characteristic. Facebook Inc (NASDAQ:FB) is just one name that comes to mind and, when it finally breached its all-time high, an epic rally ensued.
SHOP stock has run a great deal since its all-time high was breached and, if I were looking to enter a position into this investment, I would wait for an opportunity. I am watching the following indications on the below Shopify stock chart to identify where an opportunity may present itself.
Chart courtesy of StockCharts.com
This SHOP stock chart illustrates a bullish trend that began in early 2016. This bullish trend contains the quintessential characteristic that defines all bullish trends, which is a series of higher highs and higher lows. This bullish trend creates the stereotypical stair-step price pattern that we wish—and envision—that all our investments would create.
This bullish trend is captured using a simple uptrend line, and it is created by connecting a number of significant lows. This uptrend line is acting like a level of price support and, if I were looking to acquire a position in Shopify stock, I would wait until the trend line is tested.
Waiting for SHOP stock to test this support level would be the optimal opportunity to enter a position because defining risk is made easy. As long as the stock price is trading above the uptrend line, one can only assume that the bullish trend is intact and that, therefore, higher prices will follow. If Shopify stock falls below this uptrend line, it would serve to suggest that the bullish trend has met its demise and that a long position would no longer be warranted.
This uptrend line currently coincides with the 200-day moving average. this influential moving average is used as a dividing line that separates bullish investments from bearish ones. The distinction between the these two polar opposites is easy to discern. Trading above the 200-day moving average is bullish, and trading below it is bearish.
In June 2016, SHOP stock began trading above this level on a sustained basis, implying that this investment is bullish. It hasn’t returned to this level since.
These metrics coinciding at one price point suggests that support at this level is both significant and influential. I would be watching these levels if I was ever interested in accumulating a position.
If I were looking for an opportunity to acquire a position in Shopify stock, I would wait for SHOP shares to test the levels of price support that were outlined. This requires discipline and patience, which are all notable and necessary factors when establishing a position in an investment.