You don’t often come across a stock that can move 1,500%, and under five months at that. Wayfair (NYSE:W) just did, so we know that the bulls love it. The pandemic was definitely a human tragedy, and the quarantine caused economic decimation worldwide. We will spend decades clawing our way out of it. Wayfair stock proved that it can rally even in the face of extreme adversity.
Usually I avoid chasing a stock chart with rising wedges that are as steep as this. However there are no signs of abatement in the buying frenzy. W stock is still making higher-lows as it tries to break new records.
Technically there is a little bit of concern. The last two upside efforts failed with lower-highs. The combination of the two trends tightens up the trading range. Eventually, there will be a big move out of it and we will only know the direction after the fact.
Buyers Are in Complete Control of Wayfair Stock
For now, the bulls are complete control of the stock and the whole market in general. Therefore my assumption is that Wayfair stock will eventually breakout from $324 per share to launch another leg higher. The target of this could exceed $400 per share.
The proper thing to do for traders is to wait for confirmation of the breakout before chasing. Those who are looking to invest in this company long-term shouldn’t worry about a few bucks here and there. Ideally, the better entry into it is on a pullback closer to $280 per share.
If the stock market in general holds up through the holidays then this stock should soar. I am willing to bet that the shopping season is going to be huge. There will be many upside surprises especially from e-retailers like this one. Therefore the message today is simple: to the traders, I say buy the dip or chase the rip. Investors, just own it.
Management Will Deliver Upside Surprises
Wayfair stock will move on its upcoming earnings report. Usually those are binary events. It is impossible to predict which way the market trades out of them short-term. Eventually I bet that management will have nothing but good things to say about the coming months and into Christmas. Shorting it is scary so I anticipate that there would be more buyers than sellers. Consequently, dips in W are opportunities to buy.
For the bears to get their teeth into it they will need to break through the supports below. There are many of those starting at $280, and stronger even at $240. If for whatever reason that one fails then and only then would the bears have the potential of follow-through pressure. That is not my forecast, yet it is a bearish scenario that would have extremely bad consequences.
That scenario would also probably have to include a disaster outcome of the U.S. elections. Alone I doubt that Wayfair stock is going to collapse. Fundamentally the concept is great. The world is shopping online and that’s not going to change anytime soon.
Fundamentals Matter and They are OK
The fundamental metrics are still wonky (my favorite technical term) but it’s not bloated. My perspective is that from the sales side, the investors are pretty realistic with their forward expectations. The profit margins are going the wrong way but that’s the easy part. The hard part is to bring in the sales and profitability is a project for the future. That’s how Amazon (NASDAQ:AMZN) got to be what it is now. Growth stocks need to spend a lot in order to deliver on their promises. Forcing them to pinch pennies during the formative years is asking them to throw the game on purpose.
There will be setbacks like when it hit the skids in 2019. Yet over the last five years it is up 675%. The new normal of crowd phobia will help it even further in its bullish effort.
There are resistance zones above at $325 and into $350 per share. Overall this stock will be higher in the future as long as the bull market is alive.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.