How to Trade Shopify After Blowout Earnings Report

Shopify is bursting to new all-time highs on better-than-expected earnings. Here's how to trade the stock after a monumental run.
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What a blowout quarter investors saw from Shopify  (SHOP) - Get Report on Wednesday. The news is sending shares higher by about 10% so far in the session.

Before the open, the company delivered a top- and bottom-line earnings beat, crushing Wall Street estimates.

Earnings of $1.05 a share beat estimates by $1.03. Revenue of $713.3 million almost doubled year over year and blew past consensus estimates of $511.5 million.

In fact, these results smoked the highest estimates on Wall Street too, which called for earnings of 27 cents a share on revenue of $608.3 million.

Further, gross merchandising volume (GMV) grew 119% year on year to $30.1 billion and came in far ahead of estimates looking for $19.9 billion. Subscription revenue topped estimates too.

In other words, this was a beat across the board and that’s why Shopify shares - which were up 222% from the March lows heading into the print - are jumping to fresh all-time highs now.

Some are wondering if Amazon.com  (AMZN) - Get Report will see a similar reaction when it reports on Thursday.

Amazon is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AMZN? Learn more now.

Trading Shopify Stock

Daily chart of Shopify stock.

Daily chart of Shopify stock.

Through this multi-month rally, Shopify stock has paused to consolidate, held support, then burst to new highs.

In May and June, $700 support held after a long rally, before breaking out to the $900s. Afterward, support came into play between $900 and the two-times range extension at $882. That was support just a few sessions ago. 

A day ahead of earnings, Shopify unconvincingly broke out that nice consolidating bull flag setup (blue lines) and reclaimed the 20-day moving average. Those that took the risk and bought are being rewarded. 

Now clearing the 261.8% extension at $1,060 and the prior all-time high near $1,075, I am looking for this area to become support on future pullbacks. If that’s the case, it will represent both healthy and bullish price action.

A close below the 261.8% extension could fill the gap back toward $1,000.

On the upside, my attention is shifting to the three-times range extension up at $1,171.