[ Jump to the 2024-05-18 update ]
Shopify’s stock, SHOP, was trying to recover from a dramatic drop in price.
In November 2021, SHOP hit an all-time high of $176.29. Less than a year after, in October 2022, market participants were able to buy one share for $23.63.
From that point, the stock started its recovery journey.
In our June 2023 post, Is Shopify Pulling a Netflix…?, we saw the stock warming up and breaking its best respected resistance lines at the time, the 85-week SMA and the 88-week SMA.
SHOP’s price action after the resistance break wasn’t that impressive:
Shopify lost its momentum and fell below the resistance-breaking price. Together with that, when it reached its 85-week SMA and 88-week SMA lines, now from above, it respected the lines as support. That happened twice in the months following the break: in August and in October 2023.
The once-resistance lines flipped to become support:
SHOP’s bounce off its once-resistanc-now-support lines was impressive. The stock traded at a local high of $91.57, doubling its value from the bounce point.
Last week Shopify’s stock dropped bigly and lost 20.84%. Guess where the price drop stopped. You got it – just above its good ol’ support lines. Yep, the same 85-week SMA and 88-week SMA duo:
It will be interesting to the reaction of market participants at this point. For some, this price is an entry point. How do you see it?
2024-05-18 Update
A week after a massive drop in price that was stopped by the respected 85-week SMA and the 88-week SMA duo, and SHOP closed another week above that support. Unlike the huge candle it put at the end of the previous weekly session, the candle that represents last week’s session is small and dense, implying that sellers and buyers are at equilibrium:
Does that mean that Shopify’s stock price will not further decrease from here and rather bounce back up? No, it does not mean that. Does that mean that the stock price will continue its way down after a brief rest? No, it does not mean that. Market participants take different actions at key price points, and this support area is one of those points. No one has a crystal ball to predict how price action will look like next week and beyond.