Do-it-yourself website designer Wix.com (NASDAQ:WIX) had been offering investors some dazzling visuals off and on the price chart. But following an earnings-related misstep or two, the writing is on the wall — or at least the WIX stock chart — and it’s not a pretty picture for bulls. Let me explain.
On first glance, Wix’s latest quarterly confessional delivered to Wall Street this past Wednesday sounded respectable enough. The company beat profit estimates by 10 cents on earnings of 42 cents which jumped by 163% for the fourth quarter. Most companies would kill for those results, right?
But a slightly closer inspection of WIX stock’s quarterly report revealed decelerating revenue growth of 39% also coming in a tad below Street views. The company also warned of weaker-than-expected sales for Q1 and higher marketing costs. The net result trumped the headline beat as WIX stock fell nearly 12% in the report’s immediate aftermath and another two-plus percent during Thursday’s session.
So, is this a case of Wall Street overreacting with its expectations? It’s always a possibility. But WIX stock hasn’t exactly been down on its luck or a quiet, closely held secret for growth stock investors. The other bottom line is that Wix.com’s price line has been on fire the past three years, soaring more than 700% — and it’s now warning of a more bearish environment.
WIX Stock Weekly Chart
As noted, WIX stock has been on a tear for the past three years. Shares moved from a corrective base in February 2016 which flirted with Wix’s all-time-low of $14.28 to hitting an all-time-high of $121.45 by October 2018.
As the broader market corrected this past fall, shares of WIX sank by a fairly common 33% and into an area of technical support backed by the 38% retracement level and prior highs associated with a corrective base carved out during 2017 into 2018.
More recent, as the market’s “risk-on” trade quickly found favor in late December, WIX stock unsurprisingly rebounded off its low too. However, the fifty-plus percent gain and fresh all-time-highs have come at a price. As the illustrated weekly chart shows, shares of Wix have now established a failed breakout from its corrective cup base.
Now and with the post-earnings reaction reversing last week’s low, an engulfing candle on massive volume sets the stage for a bearish double-top to emerge. And with the earnings misstep in hand, as well as the bulk of WIX stock’s 700% run, shares look at risk of another substantial correction.
For investors agreeable with our somber forecast and open to shorting shares, WIX stock is currently in a position for bears to profit from. A suggested technical stop-loss above the weekly chart’s opening price of $122.32 and back above the October high allows for risk of around 12.50%. The exposure is a bit more than I’d typically like to see. Still, given Wix’s volatility and with an eye on a challenge of the recent lows, also appropriate and approachable.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.