ContextLogic (NASDAQ:WISH) stock continues to struggle, as the bulls have failed to reclaim a key level on the charts.
WISH stock sank 10.1% in the three days leading up to earnings, then gapped down by more than 33% after reporting its quarterly results.
The stock ended lower by 19.7% that day and it was good to see it rally off the open. But there’s no real way to make a 20% one-day loss sound good.
Besides, the rally from that day — Aug. 13 — hasn’t materialized into much. ContextLogic stock is trading today at just over $6.
In fact, shares are still well below where they opened for trading that day and it’s been almost a month. Let’s look at the charts, highlighting why investors should avoid this name until it can make some progress.
Trading WISH Stock
Let me be clear up front: I am not selling short a stock that’s down about 80% from the highs and trading for around $6.
It may not have much short interest — weighing it at 8.5% — but regardless, I’m not one to short this deep into the hole.
But just because a stock isn’t a short, doesn’t mean it’s a long instead.
There are a couple of observations with this chart when it comes to WISH stock. First, it’s locked in a steady, albeit volatile downtrend. Notice its series of lower highs and lower lows. Second, it remains below all of its key moving averages.
Generally speaking, these are not good observations for bulls.
Finally, the stock gapped below the prior low near $7.60 when it reported earnings. While the stock bounced from the lows, it was rejected by this level and failed to close above it. In subsequent rallies, this area has continued to reject the stock.
I have been pounding the table on the importance of this level since WISH stock reported earnings. That is the key level I am referring to when I say to avoid ContextLogic stock until it reclaims $7.60.
Until it does that, there’s really not much to discuss in regards to the bulls.
If it does reclaim this level, that will put ContextLogic above the 10-day and 21-day moving averages. That would also put the post-earnings high in play at $7.86. A push above that opens the door to a potential gap-fill, which goes all the way up to $9.41.
However, with shares stuck below $7.60, the stock remains vulnerable.
Breaking Down ContextLogic
A lot of investors either love or loathe technical analysis. Further, many investors live or die by either technical or fundamental analysis.
However, when we blend the two together, we can gain some really great clarity.
Take WISH stock for example, where the technicals are atrocious. They tell the only story that we really need to hear, which is to remain cautious with the stock. ContextLogic wouldn’t be down 80% from the highs and locked in a downtrend while the Nasdaq and S&P 500 chug to all-time highs if everything was going great.
However, the fundamentals are equally nauseating. Ever curious what would cause a stock to gap down 33% after a three-day 10% decline?
How about badly missing earnings and revenue expectations.
The company lost $111 million in the quarter versus $11 million in the same quarter a year ago. That translated to a loss of 18 cents a share, while analysts were only expecting a loss of 13 cents per share.
On the sales side, revenue of $656 million fell 6.4% from $701 million a year ago and missed consensus estimates of roughly $723 million. That’s a huge miss!
Analysts were looking for year-over-year growth. Not only did the company fail to meet consensus estimates (which called for about 3% growth), but revenues declined year over year.
The weakness the company saw during Q2 is continuing in Q3 so far. During the conference call, management explained that it needs to make some changes — no kidding! — and is doing so now. However, it will be “several quarters before the benefits begin to materialize.”
The Bottom Line
The bottom line with WISH stock is pretty easy: It’s a no-touch.
Sometimes we can have a broken chart — meaning poor technicals — but not a broken company. That is not the case here. Both the technicals and the fundamentals are poor in this scenario.
Perhaps the forward-looking market eventually rallies shares of ContextLogic ahead of its turnaround. But until it closes above $7.60, count me as a bench-warmer.
On the date of publication, Bret Kenwell 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.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
