Buy the Dip in Shopify? It's Working So Far

Bulls are stepping in and buying the post-earnings dip in Shopify. Can they push it through resistance? Let's look at the chart.
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Shares of Shopify  (SHOP) - Get Report were moving lower on Wednesday but were down just slightly after the company reported earnings - and what an earnings report it was.

For its fourth-quarter of business, Shopify grew its revenue to $977.7 million and easily beat estimates of $913.1 million, while gross merchandising value exploded 99%.

Adjusted earnings of $1.58 a share blew past expectations of $1.26.

Simply put it was a robust quarter for Shopify. So why are we getting a decline in the stock?

It’s a sell-the-news reaction. The stock rallied hard into the print, climbing 34% in just 11 trading days ahead of the event. Amid that stretch, Shopify rallied in nine of those sessions. Both of the two daily declines were less than 1%, as well.

Let’s also not forget the valuation with this stock is very full - and that’s putting it politely.

To see a little air come out of Shopify stock is justified, in my opinion. However, support is stepping in right where it needs to.

Trading Shopify

Daily chart of Shopify stock.

Daily chart of Shopify stock.

At Wednesday’s low, Shopify stock was down almost 9%. Now down about 1% and at its session high in afternoon trading, bulls are clearly stepping in to buy the dip.

While Shopify briefly broke below the 10-day moving average, it’s responding really well to this level. That’s exactly what bulls want to see in a strong-trending stock such as this one.

Previously, Shopify had gone nine sessions without touching this moving average, indicating it was ripe for a pullback.

From here, we also have a solid roadmap to follow. Specifically, we have an idea of where support is, while also having a post-earnings low to measure against at $1,345.

If Shopify moves lower in the coming days and weeks and breaks $1,345, traders may be looking for a retest of the December high near $1,285 and for a test of the 21-day moving average.

Below that could put previous resistance in play, near $1,230, along with the 50-day moving average.

For now though, bulls are flexing their muscles. I want to see if they can push the stock above the two-times range extension and the $1,500 mark. So far this area has been resistance.

A move above it opens the door to the 261.8% extension near $1,623.