Shopify Is Showing Us Bottoming Action From May

In our April 25 review of Shopify (SHOP) we wrote that “Traders should continue to avoid the long side of SHOP. We are likely to see a better buying opportunity in the months ahead.”

Has that buying opportunity arrived? Let’s check the latest charts in light of a major sell side firm resuming its coverage of the company with a hold rating with a $450 price target.

In this daily bar chart of SHOP, below, we can see that prices have been holding the $300 area in recent weeks. Prices are close to a test and maybe a close above the declining 50-day moving average line. The slope of the 200-day moving average line is negative but it intersects around $975 so SHOP would be considered extended (oversold) below this indicator.

Trading volume was very heavy in May as prices made their lows and this could be a shift from weak hands to strong hands. The On-Balance-Volume (OBV) line made a low in early May and has subsequently improved, telling us that traders are becoming more aggressive buyers.

The Moving Average Convergence Divergence (MACD) oscillator has been moving up from late January and represents a large bullish divergence when compared to the price action. The MACD oscillator is pointed up and not all that far below the zero line now.

In this weekly Japanese candlestick chart of SHOP, below, we can see improvement since our last examination in April. In early May there is a hammer pattern and some lower shadows to suggest to us that traders are getting bullish as they reject the lows.

The OBV line shows a small turn higher and the MACD oscillator is crossing to the upside for a cover shorts buy signal.

In this daily Point and Figure chart of SHOP, below, we can see a potential upside price target in the $489 area.

Bottom line strategy: Aggressive traders could go long shares of SHOP at current levels risking to $335. The $489 area is our potential price target.