SHOP Stock: Shining Bright
The first quarter is in the books, and this provides an opportunity to take a look at how my rock star top pick for 2017 has played out year-to-date. On December 27, 2016, I gave the honor of naming Shopify Inc (NYSE:SHOP) stock as my rock star top pick of 2017. At the time of that report, Shopify stock was trading at $43.64, and it is now trading at $69.23. In a matter of three months, SHOP stock has appreciated to the tune of 56.37%. This performance in the first quarter is quite astonishing, but rightfully so, this is my rock star top pick for 2017.
I generate my investment views using technical analysis. This method of investment analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. As a result, my analysis is heavily weighted by the price action and indicators that are generated on a company’s price chart. I have been refining my craft in this method of analysis for nearly two decades, and have become fairly proficient in generating an accurate view. It was this method of analysis that suggested that Shopify shares were due for an explosive run.
The following Shopify stock chart illustrates the catalysts that suggested an explosive run to the upside was brewing.
Chart courtesy of StockCharts.com
In December 2016, I outlined that Shopify shares were attempting to break above a key level of price resistance. This level of price resistance was initially created shortly after Shop shares went public in May 2015. I believed that Shopify shares were going to break above resistance because there were two catalysts that served to support an advance.
The first catalyst that supported a further advance was the uptrend line that began shortly after SHOP shares bottomed in February 2016. This uptrend line was used to define the bullish move that consisted of upward price action that contained higher highs and higher lows. This uptrend line is easily created by connecting the toughs on the price chart.
Using this trend line as a tool is just as easy as it was to create. When the share price is above the trend line, SHOP stock is bullish and higher prices are likely to follow. Trading below this uptrend line will serve to suggest that the bullish trend has concluded and a larger correction can be expected to follow.
The second catalyst that supported an advance was the moving average convergence/divergence (MACD) indicator located in the lower panel. MACD is a simple yet effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum. In January 2017, a bullish cross was generated that served to suggest that bullish momentum was propelling Shopify stock, and as a result, the path of least resistance was geared towards higher prices. This indicator did not disappoint, and Shopify quickly began to appreciate.
The appreciation in price is especially impressive because the trend towards higher prices that began in February 2016 began to accelerate significantly. This significant acceleration in price is captured using a simple uptrend line. This trend is very steep. At this pace, Shopify shares will be challenging the $100.00 mark before year end.
This target is predicated on Shopify stock remaining above the new accelerated uptrend line, which is better illustrated on the following price chart.
Chart courtesy of StockCharts.com
The acceleration in the Shop share price has been orderly and well-defined. As a result, it is easily defined using a simple uptrend line. As is the case with all uptrend lines, this one was created by connecting the troughs on the price chart.
This trend line is a very useful tool, and it can easily be used to determine if the acceleration in price is set to continue, or a correction is set to ensue. This trend line now defines risk in this investment, and as a result, it can be used to set up an appropriate investment strategy.
As an indicator, closing below this level would act as the catalyst to exit a position. This has yet to occur. Year-to-date, this trend line had been tested on numerous occasions and every time, buyers continue to step up to support this uptrend line. It is difficult to dispute the significance of this trend line at this current juncture, and as long as SHOP stock remains above the uptrend line, I can only assume that higher prices will prevail.
Bottom Line on Shopify Stock
Shopify stock, which is my rock star top pick for 2017, has failed to disappoint as it recorded a first-quarter gain of 56.37%. The catalysts I pointed out on the SHOP stock chart continue to support higher prices, and until there are indications that suggest another view warranted, I will continue maintain a bullish view.