Shopify Earnings Preview: How to Trade the Stock's Reaction

Shopify is up about 250% from the March lows. Investors are looking for a bullish report to break shares out of the current trading range.
Author:
Publish date:

After a bumpy couple of months in March and April, Shopify  (SHOP) - Get Report has really hit its stride.

Shares have ballooned higher as investors realize that retail sales weren’t evaporating during the coronavirus. Instead, they were shifting online.

Entrepreneurs and small- and medium-sized businesses also noticed this trend as they rushed to either gain exposure to e-commerce or improve their current operations.

The result? While Amazon  (AMZN) - Get Report, Walmart  (WMT) - Get Report, Target  (TGT) - Get Report and others saw an explosion in online traffic - Walmart's e-commerce sales rose 97% year over year in the most recent quarter - Shopify was seeing a surge of its own.

Now investors will be looking for those strong trends to show up in Shopify’s quarterly report, which is due up before trading opens 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

Daily chart of Shopify stock.

Daily chart of Shopify stock.

From the March low to the July high, Shopify rose 262%. However, as we progressed through the summer it was clear that Shopify was stuck in a trading range.

That range included support near $900 and resistance near $1,100. The few times both levels gave way, buyers and sellers were quick to correct these range breaks.

On the upside, Shopify’s early September rally to $1,150 was quickly pushed back below resistance, while the dip to $850 - a retest of the May spike high- was quickly bid back up by the bulls.

Now holding above the 50-day and 100-day moving averages and about 250% above its March low, investors are expecting good results.

If they get it, bulls will want to see Shopify stock take out range resistance near $1,100 followed by the September high at $1,146.91.

If Shopify can do that, it will put the three-times range extension in play near $1,171. Above that is the 361.8% extension near $1,350. Those extensions are drawn from the March low to the preceding high.

However, if we retrace from the recent September low to the summer high, investors will find the 161.8% extension up near $1,337. In other words, a move over $1,200 could propel shares higher by another $130 to $150 to the next resistance zone.

On the downside, it would be encouraging to see support hold near $900. Below the September low at $839.40 will put the 200-day moving average on the table.