The good vibes continue to roll forth for U.S. equities, and many beaten-down momentum stocks are making a comeback. Today we’ll look at one such darling from days past that is getting its groove back. We’re talking Roku Inc (NASDAQ:ROKU). After chronicling its turnabout, I’ll throw out a tantalizing trade idea.
For a big picture, clutter-free view let’s begin with the weekly chart.
Since ROKU only went public last fall, we don’t have a ton of data to go off of with this larger time frame, but it’s enough to paint the overall picture. It’s bullish and has had volatility aplenty since bursting onto the scene. Rising from some $13 to $60 in a few months is no small feat.
The retreat that struck over the first quarter of the year was necessary to digest the gargantuan gains and prove whether or not buyers were willing to defend their newfound, higher turf. Fortunately for uptrend lovers, they did. While the pullback from $60 to $30 was a bit severe, bulls still maintain the upper hand. I particularly like how the recent stock bounce has lifted the RSI back into the bull zone above the 50-day threshold.
Turning to the daily reveals just how solid ROKU’s recovery is. The two-month rally from $30 to $40 has lifted the stock back above its 50-day and 20-day moving averages making it more technically sound than at any point since its slide began.
Volume patterns are also lending buyers a hand here. Accumulation days have accompanied the past three upswings, showing strong participation by the big boys. Finally, the RSI is following along with a series of higher highs to providing momentum confirmation to the recent surge.
ROKU Trade
With yesterday’s jump, ROKU shares may be in need of some consolidation before heading higher, but one thing is clear – dips are a buy, no lie.
The cheap price tag coupled with a high overall level of volatility makes naked put plays a good idea. Sell the July $35 put for $1.30. Consider it a bet the stock sits above $35 by expiration. Your max reward is $1.30. The risk is that you have to buy the stock for $33.70 if the put sits in-the-money at expiration.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
