Short Trade Idea
Enter your short position between 136.18 (yesterday’s intra-day low) and 142.42 (yesterday’s intra-day high).
Market Index Analysis
- Shopify (SHOP) is a member of the NASDAQ 100.
- This index trades within a bearish chart pattern and rising bearish trading volumes.
- The Bull Bear Power Indicator of the NASDAQ 100 is in bearish territory with a descending trendline.
Market Sentiment Analysis
Equity futures are in the red after the AI-related sell-off continues. NVIDIA will report earnings after the bell today, and analysts expect a move of up to 7% in either direction, or roughly $320 billion. Adding to economic worries is the downbeat consumer outlook from Home Depot yesterday, while preliminary government data on continuing jobless claims showed the labor market in worse conditions than feared. Markets will receive earnings from Target, Lowe’s, and TJX Companies before the bell, which will provide further insight into consumer health.
Shopify Fundamental Analysis
Shopify is a leading e-commerce platform with nearly 60% of its business in the US. It is known as the go-to e-commerce platform for startups due to its fair fee structure and user-friendly platform.
So, why am I bearish on SHOP after its post-earnings sell-off?
SHOP reported a 32% surge in revenues to $2.84 billion, beating estimates of $2.76 billion, yet diluted earnings per share of $0.20 missed estimates of $0.26. I remain bearish on its current quarter amid consumer weakness, and I continue to view SHOP closer to a meme stock than a growth stock with an identity. Profit margins are shrinking, and operating income is weaker than expected. Still, valuations are higher than those of most AI powerhouses, and I am unconvinced its OpenAI agentic deal will deliver the hoped-for results.
Shopify Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 103.27 makes SHOP an expensive stock. By comparison, the P/E ratio for the NASDAQ 100 is 36.06.
The average analyst price target for SHOP is 175.11. It suggests good upside potential, but downside risks are greater.
Shopify Technical Analysis
Today’s SHOP Signal
- The SHOP D1 chart shows price action inside a bearish price channel
- It also shows price action between its ascending 50.0% and 61.8% Fibonacci Retracement Fan levels, following a double breakdown
- The Bull Bear Power Indicator is bearish with a descending trendline
- The average bearish trading volumes are higher than the average bullish trading volumes
- SHOP corrected as the NASDAQ 100 moved lower, and bearish conditions are rising
My Call
I am taking a short position in SHOP between 136.18 and 142.42. Valuations are sky-high and unjustified, profit margins are shrinking, and operating income is weaker than expected despite surging revenues. I am also bearish on its capital-intensive push into the gaming and technology sectors.
- SHOP Entry Level: Between 141.52 and 150.73
- SHOP Take Profit: Between 100.31 and 111.39
- SHOP Stop Loss: Between 160.49 and 169.69
- Risk/Reward Ratio: 2.17
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