Shopify's Q2 Earnings Confirm Bearish Double Top

Shopify Inc. (SHOP) shares fell 6% by late Tuesday after the company posted its second quarter financial results. Revenue rose  61.5% to $244.96 million – beating consensus estimates by $10.32 million – and net income of $0.02 per share beat consensus estimates by five cents per share. Despite turning an unexpected quarterly profit, the company's gross merchandise volume grew at a 56% pace compared with a 64% pace a year ago, showing a possible slowdown in its business.

Analysts have remained bullish on Shopify stock in recent weeks. Earlier this month, after running new channel checks, Roth Capital assigned a price target of $192.00 per share, which represents a significant premium to the current market price. Others are concerned over the U.S. move to eliminate the small-packets product category, which could increase shipping costs for many Shopify merchants and slow their sales. (See also: Facebook Woes Could Be Shopify's Downfall: Analyst.)

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

From a technical standpoint, the stock experienced a bearish double top chart pattern that could imply further downside ahead. The distance from peak to trough is roughly $35.00, which implies a downside target of around $110.00. The moving average convergence divergence (MACD) seems to confirm these bearish trends, although the relative strength index (RSI) is approaching oversold levels that could point to some consolidation occurring before a renewed move lower.

[To learn more about supplemental technical indicators such as the RSI and the MACD, check out Chapter 4 of the Technical Analysis course on the Investopedia Academy.]

Traders should watch for near-term consolidation above S1 and 200-day moving average support at around $130.00. If the fundamental situation improves, the stock could move higher to retest trendline support at around $143.00. If the stock breaks down from these key support levels, traders could see a move to retest trendline support at around $115.00. (For more, see: Adobe Acquires Shopify Rival Magento for $1.7B.)

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

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