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Time to Take Profits on Roku Stock

James Brumley

Credit has to be given where it’s due. Roku (NASDAQ:ROKU) has done the unthinkable, beating tech giants like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) in the streaming set-top box race, and keeping Amazon.com (NASDAQ:AMZN) in check.

Roku Inc Stock (ROKU) Has Upside -- But It Requires Patience

Source: Shutterstock

In that light, the incredible bullishness that’s driven Roku stock price higher by more than 600% since its 2017 IPO isn’t all that shocking.

If you missed the boat thus far though, now’s not the time to jump into Roku stock. While it feels like the 300% advance of Roku stock price just since the end of last year is never going to stop, the fact of the matter is, big swings are the norm for this name. And too many signs already suggest the Roku stock price has peaked, even if just temporarily.

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ROKU Is Poised for a Pullback

Most of the time, stocks more or less reflect their underlying value. Certainly, adjustments for the uncertainty of the future have to be made, and the market’s broad tide can work for or against a particular equity. By and large, though, stock prices usually make some sense.

Roku stock is repeatedly proving an exception to that norm.

That’s not to suggest the incredible rally of Roku stock so far this year has been entirely unmerited. As previously noted, the company did the unlikely by dethroning the likes of Google and Apple in the streaming set-top box arena, and it continues to grow. Indeed, ROKU has only recently found the winning formula for selling ad space in conjunction with selling hardware.

ROKU is a stock, however, that is still figuring out its limits.  The weekly chart of Roku stock tells the tale. This year’s big advance has carried Roku stock price up to a ceiling connecting the peaks from early 2018 and the latter portion of 2018 [the surge in late 2017 was post-IPO volatility, and shouldn’t be factored in]. Along the way, a relatively new ceiling that connects recent higher highs with the streak of higher highs in March has taken shape. Notice that the buyers of Roku stock were unwilling to keep pushing beyond either boundary.

That’s not the only red flag at this point, however. Neither is the fact that the 300% gain of Roku stock price in less than six months has pushed the limit of what should be possible.

Rather, the most concerning aspect of this chart is how buying volume has been sinking since mid-May, even though Roku stock price has continued to edge higher.


Without more buyers, the rally can’t last. In fact, a closer look at the chart reveals that the momentum of Roku stock has already petered out. Last week’s and the prior week’s closes were notably below the intraweek highs. ROKU is struggling to hold into its big gain.

The Outlook of ROKU

It’s not the end of the world. Roku stock will most assuredly bounce back. Comebacks have been the norm for ROKU. The trick is simply figuring out where the bottom might take shape or spotting it as it’s happening. Easier said than done, particularly right now , since there’s no chart history that tells us much about ROKU’s future lows.

One possible framework that might come into play is  Fibonacci retracement lines. This obscure trading tool says the most likely landing points are around $77 and then $57.50.

Wherever that low ends up being made though, odds are uncomfortably high that it will be too far below the stock’s current value to simply “ride out” the decline.  Again, this is a name that’s still looking for its post-IPO groove. With all the telltale clues of a decline in place, the risk of staying in ROKU looks much greater than the risk of getting out of it.

As of this writing, James Brumley held no position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.

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