Should ContextLogic Bulls Wish Upon a Falling Wedge?

ContextLogic (NASDAQ:WISH) stock is a frustrating investment and not just for stakeholders, although they’re undoubtedly bearing the brunt of the damage.

The logo and information for the Wish (WISH stock) mobile app are displayed on a smartphone.
Source: sdx15 /

However, analysts covering WISH stock haven’t exactly been enamored with it. While the buzzwords “e-commerce” and “China” are abundant within its narrative, WISH has only spiraled out of control.

In hindsight, we should have all taken Bloomberg’s hints about ContextLogic more seriously. Characterized as an “upstart web store best known for cheap trinkets shipped direct from China,” the business media outlet warned readers that sentiment for WISH stock was waning ahead of its initial public offering.

Given that IPO madness had taken over the market, a company moving against this grain – especially one that again had two of the strongest buzzwords going for it – was an eyeopener. Sure enough, WISH stock didn’t have the greatest debut when it slipped badly heading into 2021. However, a powerful rebound heading into the first day of February temporarily reassured stakeholders.

Unfortunately, that was really the last hurrah pending some kind of small miracle. Sure, WISH stock did pop higher on several occasions, breaking up its downward trend. Still, the undercurrents would not be denied, sinking an equity unit once priced over $31 to its time of writing price of a few cents above $5.

Making matters worse, the technical action simply aligned with fundamental realities. Earlier in the year, the pensive economic recovery hampered retail-related names like WISH stock. Later, global outbreaks of novel coronavirus variants disrupted already heavily impacted supply chains. Today, we’re getting more of the same but at a higher magnitude.

Like I said, we’ll need to see a miracle for ContextLogic shares to look attractive again. But apparently, that’s exactly what they may be getting.

A Possible Convergence in Play for WISH Stock

Typically on social media, admonitions to “do your own research” are merely subtle ways to say keep searching the internet until you find content that confirms your bias. The popularity of the flat-earth theory – which became so red-hot that a February 2020 Washington Post article felt compelled to disprove it – shows that the internet is both a powerful and dangerous tool.

Personally, before I buy stocks, I like to hear both sides of the argument. Since it’s my money at risk, why wouldn’t I want to know everything about a particular investment? Getting angry at an opposing viewpoint is akin to criticizing a Carfax report for disclosing flaws in a used car I was looking at.

Therefore, I wasn’t upset when a Benzinga analysis suggested that a bullish case exists for WISH stock. Instead, I was curious. It turns out that some technical analysts believe that WISH is charting a falling wedge pattern, whereby the resistance line and support line converge to an apex point. From there, the target asset breaks out, reversing the previous downtrend.

Some websites suggest that a falling wedge is a continuation pattern. But Stockcharts – which is an authority in technical analysis – states that while falling wedges are either reversal or continuation patterns, the end implication is usually a bullish one.

From that perspective, then, WISH stock could be a shrewd play for the speculator. However, I would be careful as you can’t ignore the fundamental counterpoint.

The Cruel Reality

As the company’s latest Form 10-Q stated, “China accounted for substantially all of marketplace and logistics revenue during the three and six months ended June 30, 2021 and 2020 based on the location of the merchants’ operations.”

Moreover, its Form S-1 states that ContextLogic’s “merchants in China have benefitted [historically] from lower shipping costs due to the Universal Postal Union Treaty.” However, “If there are increases in shipping costs, the sales price of products on our platform could increase, which could reduce the volume of transaction activity on our platform to decrease and may consequently have a negative impact on our results of operations.”

Increases in shipping costs? Suddenly, the whole world is acutely aware of the importance (and frailty) of global supply chains. Therefore, it seems riskier than usual to interpret the pricing dynamics of WISH stock as bullish.

That’s not to say you shouldn’t gamble on it. You can do what you want with your money. However, when even Stockcharts admits that “the falling wedge can be one of the most difficult chart patterns to accurately recognize and trade,” you should approach with caution.

On the date of publication, Josh Enomoto 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 Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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