One thing’s for sure about Roku (NASDAQ:ROKU) — it’s a momentum stock, so it runs fast and long in either direction. This year ROKU stock has befuddled the bears as it has risen 10 times more than the S&P 500 and either Netflix (NASDAQ:NFLX) or Disney (NYSE:DIS).
Yesterday, however, ROKU fell 2% on news that the CFO Steven Louden is leaving. He led the video streaming services, so investors are concerned over it. This could turn out to be an opportunity to reset short-term trades. The drop on Tuesday is by no means a correction, so it is not a reason to dollar-cost average down. But it could make for a short-term bet on the price action.
The price range in ROKU is getting tight, to the point that a move is imminent. Since October, the stock has set lower highs and higher lows, and now there will be a breach of one trend line or the other. When that happens, there will be follow through in that direction.
Trade Roku Stock on the Breakout
So the trade on this would be to chase a breakout above $140. This is about where the bulls could overwhelm the sellers and invite even more momentum buyers.
There will be stiff resistance around $148 per share, as it was a prior ledge from which ROKU had failed on Dec. 11. The ultimate target of this could eventually set a new high. But there are other areas of resistance until it fills the gap to $159 per share.
But conversely, if the ROKU stock price falls below $132 and then $127 per share, it could trigger a bearish pattern. The risk would then extend down to $105 per share. This is not a forecast but a potential scenario that exist. There will also be support near $118 per share.
It is important to note that this is an opportunity to trade ROKU stock, which is different than investing in it for the long term. The bullish thesis for it there remains healthy for those who believe in it.
ROKU Fundamentals Are Still Developing
Fundamentally, Roku stock is bloated from the traditional sense, but it serves a market that is in its infancy. The world is in the process of migrating its media consumption from living room stations to streaming devices, and ROKU is well positioned to capitalize on that.
Moreover, ROKU is not only about streaming opportunities. As usage expands and they grow the number of eyeballs, the company will profit even more from advertising revenue opportunities across its systems. Companies like Facebook (NASDAQ:FB) already know the power of ad revenue, so consider ROKU a cross between that and Netflix.