Shares of Roku (NASDAQ:ROKU) had a choppy start to 2020, which has likely taken a few of the chart-chaser bulls by surprise, given the sharp rally in 2019 through the month of August.
Last week the company reported earnings and even upped its Q1 and 2020 guidance, but some investors weren’t pleased and sold the stock. This led to a visually ugly bearish reversal on the chart that could point lower for a trade, yet the longer-term up-trend remains in tact. In my opinion, there are two ways to trade this stock at the current juncture.
As I always like to point out in this column, having a multi-timeframe analysis approach to the markets is crucial. Just because a stock is bullish in the short-term does not make it bullish in all time frames, and vice versa. In fact, I have found that not being able to segment time frames is one of the most widespread problems for traders and investors alike. This often causes them to either cut a trade much too early or way too late.
To be sure, ROKU can be one volatile puppy of a stock, which is to say that risk management and respecting one’s timeframe for a trade is of utmost importance.
Roku Stock Charts
On the bigger picture chart with weekly candles we see that even though ROKU stock, since its parabolic rise into the early September 2019 highs, has made a series of lower highs, the steep 2019 trend (blue line) remains in tact.
Through a combination of correction in price and consolidation in recent months the stock has worked off plenty of the intermediate-term overbought froth. While that certainly does not mean the stock has to immediately jump from here or can’t go lower, the bigger picture up-trends remain intact for now.
In fact, upon a strong bullish reversal on a weekly closing basis, I would get interested in the long side of ROKU stock once again.
On the nearer-term time frames of the daily chart, however, ROKU stock displays a slightly different picture. Of specific note is the big bearish reversal candle from last Friday, Feb. 14th, i.e., the post-earnings pop-and-drop. Initially buyers were exuberant, yet those happy feet didn’t last long as the stock reversed sharply intraday to close lower.
As a result, my proprietary indicator on Feb. 14th printed a B2 bearish reversal signal, which points the short-term direction lower for a trade.
Trading Roku Stock
Active investors and traders could look to short ROKU stock around the high $120s (or buy at the money puts or put spreads with April expiration monthly options). A downside target of $120 and possibly followed by $118 looks to be in the cards.
This being ROKU however, i.e., a volatile stock, it is imperative one sticks to stop loss rules. In my eye any strong one-day bullish reversal from here is an immediate stop loss.
Join Serge’s webinar: The One Candlestick Pattern That Will Change Your Year. Register here
