Shopify (SHOP) Shares Retreat After Sharp Surge

FXOpen -

On 12 November, Shopify released its Q3 earnings report, which exceeded analysts' expectations:

  • Earnings per share: actual = $0.36, forecast = $0.27;
  • Gross revenue: actual = $2.23 billion, forecast = $2.15 billion.

The company also provided strong earnings guidance for Q4. According to Zacks analysts, Q4 earnings per share could reach $0.39.

As a result, SHOP shares surged by more than 20% following the report's release. But is it the right time to buy now?

A review of SHOP’s price chart suggests that purchasing the stock under current conditions might be premature:

  • The price is above the upper boundary of the ascending channel (marked in blue), whereas it has typically remained within this channel since late 2022;
  • The RSI indicator signals extreme overbought conditions.

Recent price action supports the idea that the market's initial reaction may have been overly emotional, leaving the stock vulnerable to a pullback. For the first time since the report, SHOP shares closed below $105 yesterday.

While strong fundamentals underpin Shopify's long-term appeal, in the short term, the stock price could decline towards:

  • The psychological level of $100 per share;
  • Former resistance at $90;
  • The median of the ascending channel.

According to TipRanks:

  • 11 out of 18 analysts recommend buying SHOP stock;
  • The average price target for SHOP is $85 over the next 12 months.