Shopify Inc (TSX:SHOP)(NYSE:SHOP) has been on a tear this year. Year to date, the stock has risen more than 45% and is at new all-time highs. The share price has been soaring so much it has gone well into overbought territory with a Relative Strength Index (RSI) of around 80. Once RSI levels hit over 70 that’s already a sign that the stock may be a getting a little heavy, and Shopify is well past that.
The last time Shopify went into overbought territory was back in June when it was trading at around $230. Soon afterward, the stock would end up dropping to the $190s. While there is no guarantee that we’ll see a big drop in price this time, investors may want to consider unloading the stock as it’ll undoubtedly run into some resistance soon, especially as it gets closer to $300.
Shopify is already a very expensive stock and in the past the stock has seen big drops, sometimes out of nowhere. Another reason I’d be hesitant to keep holding onto the stock during this rally is that there hasn’t been any news to come out relating to the stock that would justify such a significant increase in price. And when there’s not a good reason for the price movement, usually there’s a correction that ends up happening afterwards.
It looks to me as though the stock has simply benefited from the strong rally that the markets have been on so far in 2019 and that’s not something I’d rely on if I were a Shopify investor.
