Shares of the internet retailer Wayfair Inc. (W) fell to a five-year low in March, and rebounded strongly in the second quarter, the lifting of all time in a 175-point assault before reversing the gears of the last week in a lengthy delay of the decline. This looks like a perfect place and time for shareholders to take profits and head back to the side lines because the current slowdown could last for weeks and give up a large part of the upside posted in the last two months.
The recovery has dropped the stock back under the 2019 high of $173 in refusing to bypass the buyers, while strengthening the resistance of the range, which can remain in force even in the third quarter. The rally also printed three large gaps to$ 30,$ 55, and $140 – which are likely to act as magnetic targets on the downside. This is a big deal when two of the holes is located at 100 points or more under the price negotiation.
Healthy uptrends tend to evolve through higher and lower, but the Wayfair stock not managed to carve out one more low during vertical advance. Even 30% to 40% correction off the edge would be painful, the reservation of another 40 to 60 points lower for those left holding the bag. Intense buying interest during the ascent should mitigate the selling pressure, but it may not be enough to find a parquet floor in the interior of the striking distance, in small groups level.
W Long-Term Chart (2014 – 2020)
The creation of the public company to $36.00 in October 2014 and fell to a low of $16.74 just two months later. The rise and subsequent completed round-trip in the ipo of the opening print in June 2015, the immediate generation of derivation that has landed quickly in the middle of$50. Range-bound action has taken control in 2017 when a Can breakout marked the return of the impulse buy of interest and aggressive short sellers.
The stock posted four new highs in the first quarter of 2019, when it topped out at $173.72, before a steady downtick, which amounted to near $80 in November. A rebound in January carved a lower high at $112, opening the way for a test of range support, followed by a high volume of break during the pandemic of panic. The sell-off surrendered more than 90 points in the March low at $21.70, which marked the lowest since the month of February 2015.
The rebound in April has accelerated after the company said it would meet or exceed first-quarter guidance due to a stay at home revenues surge. March the growth has more than doubled compared to January and February, triggering a frenzy of purchases that has reached an all-time high on May 6. However, Wall Street analysts have raised doubts about the torrid pace of growth, the most Americans, finally emerging from hibernation.
The weekly stochastic oscillator just cross in a cycle of selling that predicted six to ten weeks of relative weakness. This is not a big problem for most strong stocks, but Wayfair is the work off the overbought readings after a rally of 170 more points, increasing the potential for a steep retracement that tests a new support at the 50-week exponential moving average (EMA) above$ 100, more than 50 points below this morning’s opening print.
W Short-Term Chart (2018 – 2020)
The balance volume (OBV), the accumulation-distribution indicator has reached in 2019 resistance during the rally and broke out before reversing the price last week. Look at the state of the top (black line) closely in coming sessions, because the pressure of sales, which is found in a new level of support will confirm that the resistance of the fork is back in control of the ticker tape. Given the current price structure, this event is likely to coincide with the filling of the May 5, gap between $134 to $160.
The gap fill level is closely aligned with the .382 Fibonacci rally retracement level of$ 129, making it a prime target to the downside. It is also an obvious support level, so the bulls may have the opportunity to build a more low around this price zone. Look below to see if the effort fails, because the stock may fall quickly in the 200 days EMA of $100 and flirting with a return trip in the two figures.
The Bottom Line
The Wayfair rally may have ended, signaling a good time for the majority of the shareholders to take profits and walk away.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.