Shopify Inc. (SHOP) shares moved sharply lower after Citron Research – a publisher operated by the activist short seller Andrew Left – issued a bearish report on the stock. In the report, Mr. Left highlights the company's affiliate partner program that promotes members becoming "millionaires." He believes that these promotions are more brazen than the program of Herbalife Ltd. (HLF), which eventually drew the attention of the Federal Trade Commission.

Baird analysts stepped in to defend Shopify stock following the report, saying that the comparison to Herbalife is not accurate. Baird said that a review of Shopify ads does not show many references to "becoming a millionaire" as Citron Research alleges. Many investors have also pointed out that Shopify operates an e-commerce platform for businesses and does not sell to consumers, which makes Herbalife an unfair comparison. (See also: Herbalife Sinks as FTC Regulation Stands to Thwart Growth.)

Technical chart showing the performance of Shopify, Inc. (SHOP) stock

From a technical standpoint, the stock broke down from trendline support at around $112.50 to just above S2 support at $100.24. The relative strength index (RSI) fell to near oversold levels at 36.31, while the moving average convergence divergence (MACD) remains in a bearish crossover. With the high-volume down day on Wednesday, traders are likely to see a continued move lower on Thursday due to capitulation.

Traders should watch for a breakdown from S2 and lower trendline support near the psychologically important $100.00 level. A breakdown from these levels could lead the stock to the next major support level at around $85.00 or the 200-day moving average at $80.25. If the stock begins to consolidate, traders should look for a rebound from S2 support to S1 support and upper trendline resistance around $110.00 to $112.00. (For more, see: Shopify Q2 Loss Narrower than Expected, Revenues Beat.)

Chart courtesy of The author holds no position in the stock(s) mentioned except through passively managed index funds.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.