Shares of Shopify (SHOP) have made a huge rally over the past three years. From a base around the $300-$400 area the stock soared above $1,600 earlier this year. Investors with vision and patience may have stayed with purchases back in 2018 or 2017 -- the kind of gains that make us jealous.
How do the charts look today and what should be our strategy?
In the daily chart of SHOP, below, we can see an "okay" picture. Why just okay? Prices are still in a longer-term uptrend above the rising 200-day moving average line.
Trading volume has been decreasing since the middle of June when prices turned sideways from up. SHOP is now trading below the declining 50-day moving average line.
The On-Balance-Volume (OBV) line has weakened since June/July telling us that sellers of SHOP have become more aggressive. The Moving Average Convergence Divergence (MACD) oscillator has moved below the zero line for an outright sell signal.
In the weekly Japanese candlestick chart of SHOP, below, we have a different story. We can see a "dark cloud cover" top reversal pattern in July. Prices initially moved sideways but have begun to see more weakness as the broad market declines. Prices are trading above the rising 40-week moving average line but this is a lagging indicator.
The weekly OBV line has been stalled for more than a year while prices have climbed higher -- this is a long-term bearish divergence. The MACD oscillator has crossed to the downside from a lower high -- another bearish divergence.
In this daily Point and Figure chart of SHOP, below, we can see a potential downside price target in the $1,300 area.
In this weekly Point and Figure chart of SHOP, below, we used close-only price data and can see a potential price target in the $2,288 area.
Bottom-line strategy: A decline to the $1,300 area may not break the secular advance in SHOP but it also will not be pleasant. Let's check the charts again soon to see if they improve.
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