Amazon (NASDAQ:AMZN) started the trend over a decade ago, and the pandemic launched it into the stratosphere. Shopping online is how the world now wants to transact. ContextLogic (NASDAQ:WISH) is one of the companies capitalizing on the opportunity. WISH stock however has seen better days, therein lies the opportunity.
Even after a 90% rally from this month, WISH stock is still 60% off its all time highs. It is in the right segment and at the right time, so the bulls have the right idea.
The company is not a new startup – it’s been around for more than a decade. It is new to Wall Street and it didn’t start on a good note. WISH stock stumbled out of the blocks but then rallied this year extremely hard. It quickly set its high mark above $32 per share in under a month.
Alas, it’s been downhill ever since setting a series of lower-lows and lower-highs. Finally we may be seeing encouraging signs. Hopefully not a bit too late. It looks like June has been good to it, because it shows the makings of a bottom.
The reaction to the earnings in May was negative, but then within a month investors had changed their minds. A lot of the credit may be to the action on Reddit, but profits are profits regardless of why.
WISH stock spiked on June 8 as it set a hard floor at $8 per share. Eight is a lucky number in many cultures and the WISH bulls hope $15 is as well. That’s where the next bullish technical trigger lies.
WISH Stock Has Fundamental Backing
Fundamentally this is not a typical SPAC looking to establish its financial records. The business is happening already and the company has a growing revenue line item. In fact, they more than doubled total revenues in the last four years. They still lose money and it is accelerating. But for as long as they are growing, investors could look the other way.
The disruption from the pandemic mucked up the fundamental picture a bit. This means that whatever thesis we have, we should lower our conviction in it just to be safe. The sales increases for online retailers after the lockdowns are not sustainable. A lot of these habits will indeed stick on an ongoing basis, but there was a pull-forward effect.
I expect that next year there will be an adjustment stint in order to normalize. Only then will the financial metrics be useful to us.
In the meantime, investors need to continue to infuse more doubt than usual on purpose. Therefore, by definition, those who want to trade it should do so with smaller lots. Taking full positions in one shot screams of over confidence.
Options for WISH Stock
Whenever possible, I prefer using options for even more safety. There investors can establish a buffer zone between current price and their risk.
For example, instead of buying WISH stock outright, I prefer selling puts below. At the close yesterday, I could have collected $1.60 per contract to sell the $11 August put. This trade would not need a rally to win. The stock can fall in additional 30% before I may incur losses.
WISH is a speculative bet since the financials are still messy. Moreover, there’s additional outside risk from the macroeconomic conditions. The stock markets have never been higher and we are approaching the Fed taper event. The headlines about fiscal spending and asset purchases are on their way out. This will leave a void behind which would put equity prices at risk.
Since there is this much intrinsic and extrinsic risk to WISH stock, having safety zones becomes extremely important.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.
