ContextLogic (NASDAQ:WISH) has been hammered from its highs, but WISH stock has shown promise lately. On Oct. 19, it rallied 5.5% and on Oct. 20, it followed it up with a rally of 14%. Granted, the stock remains more than 80% below its all-time high from earlier this year. However, it’s making strides at recovering some of those losses. With a short interest of 25%, it’s possible the stock could be setting up for a massive short squeeze.

These moves don’t take long to materialize and they can seemingly come out of nowhere. That said, the flip side of this situation is possible too. That is, a massive disappointment if WISH stock fizzles out before it even gets started. Fundamentally, ContextLogic is still lacking, but technically, there are some key levels to know. 

What’s Wrong With ContextLogic?

Many investors don’t even know what ContextLogic does. The company operates as a mobile e-commerce company — Wish — in multiple markets including Europe, North America and South America, among others. For the growth we’re seeing in e-commerce though, we’re not seeing it here with Wish. 

Consensus expectations call for an 10% decline in revenue this year. However, in 2023, estimates currently call for 21% revenue growth.

It doesn’t help that ContextLogic isn’t profitable, although the company is making strides on improving its bottom line. Still, as an e-commerce platform, Wish shouldn’t be performing so badly. The stock has been volatile, as has the business. But both the charts and the fundamentals made a massive shift in August. On Aug. 13, shares gapped down and opened lower by 26%. While bulls tried to bid the stock off the lows, the damage was done. The massive decline came after a disappointing quarterly report.

In fact, one analyst even said the company’s outlook implied “significant damage” to its business model. They may be right, too. 

In the quarter, ContextLogic missed on top- and bottom-line expectations, where revenue of $656 million fell 6.4% from $701 million a year ago and missed consensus estimates of roughly $723 million. In other words, analysts were looking for a year-over-year gain in sales and the company delivered a notable year-over-year decline. 

I won’t hash it out again, but a few months ago I also pointed out that the conference call didn’t offer much reprieve. Management said they “expect it will be several quarters before the benefits begin to materialize.” If those benefits don’t materialize, this stock is toast. 

Trading WISH Stock

Amazon (NASDAQ:AMZN), Etsy (NASDAQ:ETSY) and Shopify (NYSE:SHOP). These are great online operators. Throw PayPal (NASDAQ:PYPL) in the mix too if you want. Even eBay (NASDAQ:EBAY) can be named. But so far, WISH stock will remain absent from this list. 

A month ago, I wrote an article titled, “ContextLogic Stock Isn’t Worth Considering Below This Key Level.” That key level is $7.63 and it’s the early summer low where WISH stock rocketed higher from. When the stock gapped down on Aug. 13 and rallied off the lows, it tried to reclaim this level and couldn’t. On another rally attempt in September, this level again rejected ContextLogic. 

That led to a painful downtrend, with the stock eventually bottoming at $4.61. Now working with a higher low (and thus, an uptrend support level), WISH stock has reclaimed its 10-day and 21-day moving averages. However, it faces a key test with the $6.15 level. If it clears this mark, the declining 50-day moving average and daily VWAP (volume-weighted average price) measure loom large near $5.34. Now the situation is pretty simple: Either WISH stock bursts through these measures and pushes higher or it retreats. 

If it retreats, let’s see if the 10-day and 21-day moving averages act as support, along with uptrend support. If they don’t, then the $4.61 low remains vulnerable. 

On the flip side, if ContextLogic bursts over the 50-day moving average then the key $7.63 area is back in play. While it doesn’t seem like much, a move to this level represents about 25% upside, even after this week’s strength. 

On the date of publication, Bret Kenwell 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.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.