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ContextLogic Stock Only Has One Trade Setup After Earnings Plunge

Shares of ContextLogic are getting decimated on Friday. Here's the only trade setup present in the stock.

Investors in ContextLogic  (WISH) - Get Free Report on Friday were wishing that it was the weekend. Poor puns aside, shares were getting decimated on Friday.

Down more than 26% in premarket trading to sub-$7 levels, the stock was getting crushed after its disappointing quarterly results. That may be putting it mildly. 

Earnings and revenue both declined year over year and both results missed analysts' expectations

Not surprisingly, the quarter has drawn some downgrades, including a painful double downgrade from the analysts at J.P. Morgan. 

In reality though, we didn’t need earnings to tell us that the stock was doing poorly. In fact, there was no real reason to be long ContextLogic coming into the print. At least from a technical perspective. 

After coming public in December, shares climbed north of $30 and topped at $32.85 in late January.

The ensuing bear market in growth stocks did not spare ContextLogic. 

Although shares were above the May lows coming into earnings, the stock has continued to struggle for upside traction as it was down 71% from the highs as of Thursday’s close.

Those losses have grown more with Friday’s decline as shares take out the bear-market lows.

Trading ContextLogic Stock

Daily chart of ContextLogic stock.

Daily chart of ContextLogic stock.

In June, the stock looked below the May lows near $7.60 and failed to close below them - a "look below and fail" setup - before eventually erupting to the upside and climbing back above $10.

Bulls were hoping that was the last of the decline. However, despite the pop back toward $15 - which quickly became resistance - ContextLogic dropped back below the 10-day, 21-day and 50-day moving averages.

These moving averages have been resistance since, particularly the 50-day moving average.

From here, I can only see one real trade setup for the bulls.

The stock needs to reclaim the $7.60 level. Opening below that mark and pushing back above that level could give us another “look below and fail” setup.

If that’s the case and that setup materializes, traders will likely use a stop-loss at or just below Friday’s low. Should it roll over and hit that stop, they will exit the trade.

If ContextLogic can reclaim the prior low near $7.60, we could have a gap-fill trade in play back up to Thursday’s low, at $9.34. Above that puts $10 in play, followed by the 50-day moving average.