Shopify Inc. (SHOP) stock jumped more than 2% on Monday to fresh 52-week highs as it continues to rally following its breakout from its price channel earlier this month. While the company continues to execute from a fundamental standpoint, the stock is approaching overbought levels following its breakout and could see some near-term consolidation over the coming weeks as traders lock in profits.
Last quarter, the e-commerce provider reported revenue that rose 75% to $151.66 million – beating consensus estimates by $8.02 million – while a net loss of one cent per share beat consensus estimates by six cents. The company also reported strong underlying business fundamentals, including a 74% annual merchant growth rate since 2012 and more than 1.2 million active users of its backend platform. (See also: Shopify Stock Breaks Out After Q2 Beat.)
From a technical standpoint, the stock broke out from upper trendline resistance at $110.00 earlier this month to just above R1 resistance at $118.92. The relative strength index (RSI) has reached overbought levels at 77.95, but the moving average convergence divergence (MACD) shows a strong uptrend following a bullish crossover in mid-August. Traders should maintain a bullish bias on the stock over the long term but could see some short-term consolidation.
Traders should watch for a move to R2 resistance at $126.93 on the upside or a move back below R1 resistance to test trendline support at around $111.00 on the downside. Shares are likely to experience some near-term consolidation between trendline support and R2 resistance levels over the coming week as traders lock in profits and the RSI moves back into neutral levels before another push higher. (For more, see: Shopify Launches Ecommerce Channel for Gaming Companies, Integrates With Apple.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.