Shopify's Bifurcated Narrative Raises Intrigue For Direxion's SHOP-Focused SHPU/SHPD ETFs

Leveraging the power of digitalization in modern commerce, Shopify Inc. (NASDAQ:SHOP) has ranked among the top performers on Wall Street, gaining over 43% on a year-to-date basis. In contrast, the benchmark S&P 500 is up only 14.4% during the same period. However, recent volatility in SHOP stock has raised serious concerns about forward viability. Amid deep-seated economic challenges, some investors have grown skeptical of the multinational e-commerce specialist.

Fundamentally, SHOP stock really represents a bifurcated narrative. On one hand, Shopify recently delivered what, on paper, should constitute a strong financial performance. For the third quarter, the company posted earnings per share of 34 cents, beating out analysts’ consensus target of 30 cents. On the top line, it generated $2.84 billion, rising above expectations calling for $2.76 billion.

Unfortunately, investors were less than impressed with some of the nuanced details of the report. For example, adjusted net income landed at $441 million, which was noticeably off from the $459 million posted one year ago. Furthermore, the latest quarter’s adjusted gross margin was 48.9%, another downturn relative to the 51.7% reported in the same period last year.

Shopify disclosed its earnings early last week on Nov. 4. After investors fully digested the news and the forward implications, SHOP stock was down 13.28% in the trailing five sessions from the close of Nov. 7. Conspicuously, in the past 30 (calendar) days, the high-flying security had only moved up less than 1%.

Not everyone was displeased with the financial results. Notably, DA Davidson analyst Gil Luria maintained a Buy rating on SHOP stock while raising the price target to $195 (from the previous $185). In particular, the expert believes that Shopify is continuing to strengthen its leadership as the go-to platform for global enterprises and direct-to-consumer brands. Moreover, there could be enhanced potential for Shopify to monetize its growing customer base.

Still, at the current price level, SHOP stock has essentially traded flat since early August. With consumers clearly struggling amid anxieties associated with inflation and job security, investors may question the wisdom of heavy exposure to the discretionary retail space. As such, Shopify presents a perplexing canvas for market participants.

The Direxion ETFs: With traders on both sides of the aisle armed with datapoints to support their positions, the underlying debate offers a relevant entry for financial services provider Direxion. For optimists, the Direxion Daily SHOP Bull 2X ETF (NASDAQ:SHPU) is an exchange-traded fund that tracks 200% of the daily performance of SHOP stock. For the skeptical, the Direxion Daily SHOP Bear 1X ETF (NASDAQ:SHPD) tracks 100% of the inverse performance of the namesake security.

While these products offer many practical applications, a core driver of Direxion ETFs is flexibility. In most cases, traders interested in leveraged or short positions must engage the options market. However, financial derivatives impose complexities that may not be suitable for all investors. In contrast, Direxion ETFs can be bought and sold much like any other publicly traded security, thus easing the learning curve.

Though convenient, traders of specialized funds must consider their unique risk profile. First, leveraged and inverse ETFs typically incur greater volatility than standard funds tracking benchmark indices, such as the S&P 500 index. Second, Direxion ETFs are designed for exposure lasting no longer than one day. Holding these ETFs longer than recommended may expose traders to value decay due to the daily compounding effect.

The SHPU ETF: Introduced in early August of this year, there’s not much data to work with for the SHPU ETF, which is down roughly 11% since its debut.

• A deeper look at the technicals doesn’t reveal a whole lot, other than recent turbulence. Currently, its price action sits below the 50-day moving average.
• What’s most concerning is that on Nov. 7, SHPU gapped down and ended the session down nearly 5%. A quick recovery will be needed to avoid significant technical damage.

The SHPD ETF: Similar to its bullish counterpart, the SHPD ETF lacks much data. So far, it is down about 2% since its debut.

• Although the SHPD ETF has been choppy, it’s also notable that the price action popped just above the 50 DMA, along with the 20-day exponential moving average.
• What’s most distracting about the inverse fund is the general lack of volume. At about 11,000 units traded, this level represents relatively thin participation.

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