- On Monday, Roblox (RBLX) stock showed a rare bout of strength, climbing 2.13%.
- The gains came even as the Nasdaq closed deep in the red.
- Wait for a break above the 50-day moving average before buying RBLX stock.
Yesterday, Roblox (NYSE:RBLX) stock made a rare appearance atop the leaderboard with a gain of 2.13%. Meanwhile, every stock index lost ground that day, making the strength even more impressive. Even the Ark Innovation ETF (NYSEARCA:ARKK), which RBLX stock tends to move closely with, finished down over 1%. I’ll be the first to give Roblox credit for swimming upstream, but after analyzing the chart, I believe we need to see more evidence before aggressively buying it.
I’m open to the possibility of bulls building on their foothold. I’ll outline below how the pattern might play out and which level needs to be breached before directional trades are worth a shot. At a minimum, today’s strength should steer you away from bear trades. If you’re looking for downtrends to short, you’ll find easier pickings elsewhere.
| Ticker | Company | Current Price |
| RBLX | Roblox | $46.34 |
How a Bottoming Pattern Could Form In RBLX Stock
Trend reversals come in many forms, including double bottoms, rounded bottoms, inverse head-and-shoulders and cup-and-handles, to name a few. Although they vary slightly, the underlying signal is the same. They all reveal that sellers’ strength is waning while demand is increasing. The pattern that Roblox mirrors most closely is an inverted head-and-shoulders pattern. We need more than a single candle, but if we see follow-through in the coming days, it will create a higher pivot low here. That would serve as the right shoulder of the reversal formation.
In theory, the head and shoulders pattern isn’t completed or confirmed until we break above the neckline. It is the horizontal resistance zone that marks the previous pair of pivots. Breaking through it guarantees you make a higher pivot high, adding further legitimacy to the turnaround bid. With RBLX stock, this critical line in the sand lies at $52.50. Notice how it rejected last month’s reversal attempt.
Importantly, pushing above it would also mean prices are clearing the 50-day moving average for the first time since falling below it late last year. Many position traders and trend followers emphasize the 50-day and are unwilling to turn positive on prices until we are above it.
Two Ways to Play Roblox Today
Would-be buyers have two options. First, wait for the break of $52.50 before doing anything to ensure this potential reversal pattern comes to fruition. The next resistance zone isn’t until $70, so there’s a price void that could fill quickly and yield big profits. I’d be open to any bullish strategy (stock or option) on a close over $52.50.
The second option is to take a position on Tuesday if we break above Monday’s high ($44.70) in anticipation of the neckline break. Since this is a more speculative entry, we can build a more conservative or higher probability trade to give more margin of error. At $44, the RBLX stock price is cheap enough to sell naked puts, but I’m going to build a bull put spread for a more accessible trade. The structure consists of selling puts below the current stock price in hopes that they expire worthless.
For instance, if you’re satisfied with a near-90% chance of capturing a 10% return and are willing to bet RBLX stock can stay above $30 for the next month, enter this spread: Sell the May $30/$25 bull put spread for 55 cents.
The max gain is limited to 55 cents, and the max loss is $4.45. To minimize the loss to around $1.50, you could exit if the stock if it falls below the short strike price at $30.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
