SIA Chartsā relative strength rankings help investors manage risk by identifying stocks and sectors which are underperforming relative to their peers and/or their benchmarks and should potentially be avoided. Staying away from stocks that are not attracting capital can help investors to avoid areas at higher risk of absolute declines and relative underperformance and to reduce negative event risk.
We last featured Shopify (SHOP.TO) in the March 7th edition of the Daily Stock Report. At that time, it had just dropped out of the green zone in the SIA S&P/TSX 60 Index Report into the yellow zone and was testing $100.00 round number support. Since then, the shares have continued to tumble down the rankings falling from 25th place to 48th place and dropping into the Red Unfavored Zone.
Since our last report on Shopify, the shares have lost 22.2%, compared with a 3.4% gain for the S&P/TSX Composite Index. Much of that loss was due to a post earnings selloff which would be avoided by focusing on higher relative strength.
Candlestick Chart Breaks Down Again. Bearish technical signals continue to pile up on Shopify (SHOP.TO) shares. Back in March, SHOP.TO broke out to a new high then sold off on volume, a Bearish Engulfing or Bearish Key Reversal Week that marked a buying climax and signaled a decisive negative shift in sentiment.
Since the shares have been under distribution, establishing a new downtrend of lower highs, dropping below their 10-week moving average and then $100.00. Two weeks ago, the shares sold off on high volume again, this time completing a bearish Descending Triangle pattern. Last week, SHOP.TO continued to slide, taking out the $80.00 round number and snapping an uptrend line.
Next potential downside support appears near the $70.00 round number, followed by $63.50 where a measured move and the October low converge. Initial resistance appears near $80.00 then $84.50.
Point and Figure Chart On a Big Drop. An uptrend in Shopify (SHOP.TO) shares peaked back in February and since then, it has been under distribution. Over the last three months, a new downtrend of lower highs has emerged. The selloff accelerated after the shares broke down below $100.00, with a bearish Spread Triple Bottom adding to previous Double Bottom breakdowns. This monthās selloff continues without even a 3-box P&F bounce, indicating continued investor bearishness.
Potential downside support tests appear near $74.25 based on a horizontal count, previous lows and an uptrend line near $70.00, then $63.40 were the October low and a horizontal count converge. Initial resistance appears near $85.35 based on a 3-box reversal.
With a bearish SMAX score (which is a near-term 1 to 90-day indicator comparing an asset against different equal-weight asset classes) of 1 out of 10, SHOP.TO is exhibiting short-term weakness against the asset classes.
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