Shopify Stock Moves Further Into Overbought Territory

Shopify Inc. (SHOP) shares rose nearly 8% during Wednesday's session after fourth quarter earnings surpassed even the highest analyst estimates. Revenue rose 46.9% to $505.16 million, beating consensus estimates by $23.08 million, and non-GAAP earnings per share reached 43 cents, beating consensus estimates by 19 cents. Gross merchandise volume rose 47% to $20.6 billion versus a $20.3 billion consensus, subscription revenue reached $183 million, and merchant revenue hit $322 million.

Looking ahead, the company expects first quarter revenue of $440 million to $446 million versus a $444 million consensus and full-year revenue of between $2.13 billion and $2.16 billion compared to a $2.12 billion consensus.

Analysts had a mixed response to the strong fourth quarter results. Baird raised its price target from $465 to $590, saying that Shopify's massive e-commerce opportunity warrants a premium valuation. On the other hand, Roth Capital suggested that investors use the rally to pare exposure, saying that Shopify stock is treading a fine line with its valuation.

From a technical standpoint, the stock broke out from its prior highs of around $500 to fresh all-time highs of nearly $600 before giving up some ground. The relative strength index (RSI) rose further into overbought territory with a reading of 79.28, while the moving average convergence divergence (MACD) experienced a slight bullish crossover.

Traders should watch for some consolidation below trendline resistance near $571.30. Traders could see a move lower toward prior highs of closer to $500 over the coming sessions. If the stock breaks out from trendline resistance, traders could see a move toward fresh all-time highs. The lofty RSI reading suggests that a consolidation may be more likely to occur.

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