The well-known company that manufactures a variety of digital media players that allow customers to access Internet streamed video or audio services through televisions, Roku Inc. (NASDAQ: ROKU) seems to be poised for a decline in its price in the near term as per its latest charts.
Bearish Indications
#1 Downtrend channel resistance: The daily chart shows that the stock has been moving down after reaching the upper rail of a downtrend channel. This has occurred multiple times and these areas are marked as pink color ellipses in the daily chart. The stock price is currently nearing the upper rail of the channel again. This seems like a good area for the stock to move down again.
Daily Chart – ROKU
#2 %K below %D in Stochastic: The %K line is currently below the %D line in stochastic of the daily chart. It is also currently moving down from overbought levels.
All these indicate possible bearishness.#3 Bearish MACD: The MACD line is currently below the MACD signal line in the daily chart, which is a possible bearish indication.
#4 Fibonacci Resistance: Usually, after a down-move, stocks retrace to any of the key Fibonacci levels before resuming its downward trend.
The stock had moved down after facing resistance at the 61.8% Fibonacci level and is currently near the 50% Fibonacci resistance level as seen in the weekly chart.
This seems like a good area for the stock to decline further.
Weekly Chart – ROKU
#5 Uptrend Broken: The weekly chart shows that the stock has currently broken down from its uptrend. This uptrend line is marked in pink color in the weekly chart. This is a possible bearish indication.
#6 Bearish RSI: The RSI is currently moving down from overbought levels and nearing 50. This is a possible bearish indication.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on ROKU when it reaches the upper rail of the downtrend channel. This translates to a price of around $128.
For those with a higher risk appetite, you can take short positions on half the intended quantity of shares of ROKU if the stock trades below yesterday’s close at around $122.
TP: Our target prices are $115 and $100 in the next 3-6 months.
SL: To limit risk, place a stop loss at $136. Note that this stop loss is on a closing basis.
Our target potential downside is 10% to 22% in the next 3-6 months.
- Entry near $128: For a risk of $8.00, our target rewards are $13.00 and $28.00. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry near $122: For a risk of $14, our target reward (TP#2) is $22. This is a 1:2 risk-reward trade.
In other words, this trade offers nearly 2x to 4x rewards compared to the risks.
Risks to Consider
The stock may reverse its overall trend if it breaks upwards from the upper rail of the downtrend channel with high volume. The breakout of the stock could also be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
Happy Trading!
Tara
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