Investors in ContextLogic (NASDAQ:WISH) stock wished it could find a bottom already — pun intended. The latest debacle in WISH stock happened over its earnings report. Consequently, the move left a giant gap in the chart. My bet is that it will fill it bringing at least a 25% rally as a result. But today’s write up goes a bit more beyond the gap opportunity. This stock makes for a good swing trade opportunity for months to come.
Even though the company delivered growth on a yearly basis. Wall Street is making a mistake interpreting lower revenues than last year as a shrinking trend. Rolling over pandemic comparable performance is tough. The experts should have expected that, they wouldn’t have punished the stock this hard.
The analysts rushed to downgrade their price targets in droves. Down the road, I bet they will have a change of heart and ratchet them back up.
WISH only needs time to clear the hyper-growth performance from 2020. That year had an adrenaline shot from the shut-down. Almost all so-called “covid stocks” had to go through this. Even Amazon (NASDAQ:AMZN) fell more than 10% on the last two reports. Until then, we’d be better off looking at absolutes not relative performances.
Investors are rarely reasonable so they over commit and then act emotionally. This is yet another fine example of how the knee-jerk reaction to earnings reports is all about the human element. The absolute results that management delivered were not nearly as bad as the reaction was.
Nevertheless, you can’t argue with the price action. They say “price is truth” and this is one example of that statement.
WISH Stock Has a Technical Problem
The problem with the reaction is not just the 40% drop. Now WISH stock is below the floor from June. Back then it rallied 95% off of a solid bottom, and now that level is above it. Prior support often becomes forward resistance. Therefore, the bulls will have to work extra hard just to recover from the disaster scenario earlier this year.
The earnings drop left the giant gap, and Wall Street loves the temptations that come from them. Not every gap fills, but one this large and this low should entice hopeful buyers. Let’s be clear that the bears are in charge of this chart for months. After a brief rally earlier this year, it all ended in February. The stock is now but a sliver of that — down 80% from high-to-low. Rallying back above $10 will not be easy.
Eventually, the proof will be in the pudding for investors. WISH stock just needs time to build Wall Street cred. Total revenues more than doubled in the last four years, this will matter in time. The company is not profitable yet, but it doesn’t need to be at this point.
The company’s public financials are still too new to scrutinize too harshly. Investors may want to give it the benefit of the doubt.
The Clock Is Ticking
Eventually it will find a bottom, the sooner the better so its fans should hop to it stat. It’s important to remember that this bear trend is happening in the most bullish market ever.
That door will not be open for long if we believe the hints from Federal Reserve Chair Jerome Powell at Jackson Hole. Experts now believe that the Federal Reserve will start tapering its asset buying program this year. If that’s true, it will mark the beginning of the end of the greatest quantitative easing. Missing such tailwinds could put even more drag on this stock.
WISH stock is also part of the meme posse. At any given moment it could explode and for no reason. Owning shares, or deep-in-the-money leap calls make sense. Every portfolio needs a wild card bet on success. This one is as realistic as any because it actually has fundamentals. I would rather risk capital on this lottery tickets, than chase an EV company that hasn’t started production yet.
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.