Wayfair Inc. (W) soared higher earlier this month after reporting its first quarter financial results. Revenue increased 28.6% to $960.83 million – beating consensus estimates by $25.21 million – while the company reported a net loss of $0.48 – 10 cents better than consensus estimates. But, the real story was the 46% year over year increase in active customers to 8.9 million – a higher figure than the market was expecting to see.

Despite the strong earnings, there have been some concerns. On Friday, shares fell about 6% on news of Amazon.com Inc.’s (AMZN) deeper commitment into the furniture market where Wayfair operates. Amazon announced plans to build four large warehouses to help deliver bulky items – like furniture – and speed up its delivery times. Over the past year, shares have also soared more than 70%, which has made the stock an appealing target for short-sellers.

From a technical standpoint, the stock broke out from its R2 resistance at $51.21 following its first quarter earnings and gapped up to a high of just over $65.00. The stock has since lost momentum and fell about 6% on Friday’s session to $60.68.

Technical indicators suggest that the stock is overbought with a relative strength index (RSI) reading of 74.98, although the moving average convergence-divergence (MACD) remains in a bullish uptrend since late-April. The stock could experience a period of consolidation following its dramatic gap higher or potentially close the gap by moving down to its R2 resistance at $51.21 – a potentially lucrative short-selling opportunity.  

Traders may want to consider initiating a short position if the rally continues to lose momentum, although the stock’s long-term uptrend makes it difficult to short. As an alternative, traders could look to buy or add to a position after a period of consolidation and if it rebounds from R2 resistance before continuing its trend.

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

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