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ContextLogic Offers a Solid Play for Cautious Investors

Lately, ContextLogic (NASDAQ:WISH) has been left to its own burdened and bearish devices. Today though, is there a chance WISH stock can grow into more prized merchandise for investors?

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

Source: sdx15 / Shutterstock.com

Let’s take a close look at what’s happening to WISH shares. After, I’ll offer a risk-adjusted determination aligned with those findings.

Quick Background on WISH Stock

Microsoft (NASDAQ:MSFT). Tesla (NASDAQ:TSLA). Costco (NASDAQ:COST). McDonalds (NYSE:MCD). Each of these are titans of commerce. Each company is also a prime example that investor action can trump wishful thinking alone in forceful ways. They’re hardly unique either.

Small-cap and larger market bellwether averages are at record highs and sporting burly double-digit gains in 2021.

Even special-purpose acquisition companies (SPACs) as a group (which were derailed for much of the year) have risen from the ashes in recent weeks. That includes names like Lucid Motors (NASDAQ:LCID), SoFi Technologies (NASDAQ:SOFI), fuboTV (NYSE:FUBO) and many more.

A rising tide might seem to be lifting all boats in the stock market. Well, that is of course until one takes a gander at WISH stock.

Shares of ContextLogic are off 73% year-to-date. In fact, they’re just 12% — a meager 60 cents — removed from their all-time-low. It hardly seems fair, right?

Wrong.

WISH stock’s significant 32% bearish short interest certainly won’t see it that way. And to be perfectly fair, it would be hard to argue against those wagering against ContextLogic’s shares this year.

Notoriously cheaper quality goods or novelty knickknacks? That’s what one is buying into when they purchase WISH stock.

The risks get a little uglier when you consider that much of Wish’s merchant offerings come from China and it has experienced Covid-related supply chain bottlenecks. Its purchases also come with an iffy return and refund process. No thanks to WISH stock, right?

It wasn’t always that way though.

ContextLogic’s History With Reddit

For this year’s fast money Reddit crowd WISH stock was, at one time, every bit the investment opportunity. But those rules of engagement have little to do with company longevity and business prospects and everything related to short-squeeze scheming.

And for a short while the trade worked. Briefly.

In January as Reddit’s apes began to make a name for themselves with over-the-top squeezes in GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) headlining, WISH stock managed a respectable 80% surge. But those days are long since gone.

Unlike GME, AMC stock and other squeeze trades which have put refreshed cash war chests to good use and pivoted themselves for turnarounds, WISH has proven a house of pain for shareholders believing there was something more to ContextLogic.

Ballooning red ink, rising costs, sharp declines in tchotchke growth metrics like app installs and average user time have conspired against WISH stock and its ape base. At least for those that bothered to stick around for August’s dismal Q2 report.

The fact is shares were already a mess and down big-time from their January high when ContextLogic delivered atrocious results fitting for bears wearing shorts in WISH stock. And those traders ran with the report as WISH slumped more than 20% to all-time-lows, while bulls were sent packing.

WISH Stock Weekly Price Chart

ContextLogic (WISH) bear flag which could turn into a bear trap supported by improving stochastics
Source: Charts by TradingView

Today and with shares down another 30% or so from August’s fallout, WISH stock has the technical look of cheap merchandise that bulls may look to try on. But don’t expect a lasting reaction. If you’re like me, you look at Wish’s business with skepticism, so what I’m proposing isn’t a long-term trade.

Still, a weekly chart bear flag stationed off ContextLogic’s lows could turn into a bear trap as evidenced by a much-improved stochastics indicator. And next week, an earnings release that’s better-than-feared or maybe offers an upside surprise could be a trigger for a shorter, but significant rally.

For those with accounts that have money allocated for more speculative ventures, an appropriately sized long Nov or Dec $6 call looks like a decent way to position.

If I’m right about WISH stock’s near-term prospects, those slightly out-of-the-money contracts could go firmly in-the-money and offer solid, leveraged profits. And in the event ContextLogic delivers an authentic bear flag that works, bulls won’t need snorkel gear to survive.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2021/11/wish-stock-offers-a-solid-play-for-cautious-investors/.

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