It’s been on a tear. But when it comes to ContextLogic (NASDAQ:WISH), are bigger gains possible or is that misplaced thinking without substance to back it up? Let’s see what’s happening off and on the price chart of WISH stock, then offer a risk-adjusted determination aligned with those findings.
In recent weeks, there’s been a great deal of something larger than just wishful thinking going on in ContextLogic. Specifically, I’m referring to the outsized price action in WISH stock. Shares are up more about 80% since early June. But many are cautiously warning the bid is attributed to 2021’s notorious phenomenon known as Reddit.
Watch out below, right? Maybe not.
Is WISH Stock a Flash in the Pan?
Some may take issue with how Redditors play the game and keep at arm’s length from that type of trading activity. Think SOS Limited (NYSE:SOS), Sundial (NASDAQ:SNDL) or Dogecoin (CCC:DOGE-USD) for some of that messy evidence. But WISH may not be a flash in the pan.
A select few of Reddit’s targeted stocks have gone on to bigger and better things. Could WISH stock follow in the footsteps of let’s say, GameStop (NYSE:GME) and turn itself into something potentially much larger than just a meme stock? Could be. Even better, it may be best to cautiously approach WISH as the next Amazon (NASDAQ:AMZN) or Alibaba (NYSE:BABA). Why’s that? I’m glad you asked.
For starters, Wish isn’t a turnaround play like GME or for that matter fellow Redditor stock AMC (NYSE:AMC). WISH stock is a recent IPO with a notable $1 billion-plus hoard of cash when it’s life as a publicly-traded company got underway.
InvestorPlace’s David Moadel also notes Wish’s core marketplace segment’s solid growth as a positive for the stock. There’s also the company’s registered monthly active users’ base. Impressively, that figure has remained north of 100 million subscribers since late 2019. That sounds Amazon-worthy, doesn’t it?
There’s more that WISH has in common with AMZN and BABA too, which could work in its favor.
WISH stock’s Wish platform operates as an e-commerce seller of goods. That’s not unlike Amazon’s or Alibaba’s substantial retail businesses and where their sprawling tendrils began. Further and similar to those diversified tech giants, Wish has a couple other troublesome-sounding knock-offs to perversely consider.
On the less-certain side of things, WISH is mired in red ink. Moreover, it’s burning through its war chest of cash due to heavy sales and marketing expenses to be competitive. That’s unlikely to go away anytime soon, but it’s also not the end all, say all.
Remember the days when AMZN bears cried foul for similar transgressions with virtually every quarterly report? But despite numerous warnings, the company’s tactics and losses didn’t stop Bezos from ultimately succeeding. On the contrary. So maybe, just maybe Wish is in good company?
There’s another threatening, on the surface at least, threatening similarity with WISH, AMZN and BABA. On the darker side, some of the company’s notorious, heavily discounted bargains aren’t what they’re cracked up to be. WISH has been facing allegations of counterfeit goods being sold to global consumers from bad actor, overseas merchants.
Oh the shame!!?? Again though, didn’t AMZN and BABA face similar challenges? The answer is yes. And, as with those tech giants, my guess is Wish will likely move past those misrepresentations. Call me an optimistic cynic. Moreover and importantly right now, based on WISH price chart, the stock’s representation as a bearish investment appear numbered.
WISH Stock Monthly Price Chart
Source: Charts by TradingView
Redditors and its band of merry meme traders might have perpetrated a fraud in some stocks this year. But the evidence on the monthly chart of WISH stock points at the potential for an authentic bullish rally to emerge, no matter the source.
Technically, June’s price action has shaped a very good-looking bottom. Not unlike the candlestick pairing which marked WISH’s all-time-highs, this month’s Reddit rally has established a modestly, but volatile engulfing pattern. With massive volume accompanying the bullish reversal and Wish’s downtrend line broken in the process, there’s a good deal of supporting evidence technical-oriented investors beyond the meme crowd will begin to take notice of WISH.
My suggestion right now is wait for trading in July to commence. And should WISH confirm June’s candlestick with shares trading through $15.18, buying a show-me-the-money December $17.50/$30 call spread looks well-priced. In our estimation that should help avoid counterfeit stock patterns, while profiting handsomely from a real McCoy rally of genuine worth that’s bigger than the Reddit crowd.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.