DraftKings Inc. (DKNG) has carved the most bizarre of the momentum rally of 2020, quadrupling of the price off the March lows, despite the closure of all major sports venues, with the exception of horse racing, UFC, and a little boxing. eSports have taken up some of the slack, but it is clear that the optimistic supply is focusing on the optimism as to the long-term prospects. Unfortunately, this is a difficult chore, given the failure of sports leagues to successfully re-launch their season.
At least four of college football camps have closed in the last two weeks because of the multiple positive COVID-19 cases, raising serious doubts about the upcoming NFL and NCAA season. Unfortunately, the leagues are doing everything they can under-estimate the obvious risks because they are driven by dollars and cents, rather than the lives of players and spectators. Also, consider the consequences if a league starts, plays a few games, and is forced to quarantine teams due to new outbreaks.
Wall Street remains highly bullish on DraftKings stock, with the growth of odds for more states to legalize sports betting. The Street of the eight “Buy” and a “Hold” recommendation to highlight this optimism, with price targets now ranging between $25 and $55. The stock is currently trading about six points below the median of $44 target, providing a lot of leeway for higher prices. Similarly, the project on 31 July of the NBA launch should go smoothly, or there is a risk of DraftKings stock see a wave of downgrades.
DKNG Daily Chart (2019 – 2020)
The current DraftKings was created in December 2019 through the merger of the former company with Diamond Eagle Acquisition Corp and SB Tech. The stock has jumped above $10.00 after the merger, thus marking the first step in a strong upward trend in the head in the upper part of the teens in February. An early March breakout attempt has failed, leaving the place to a brief but painful slide that has surrendered nearly 46% of the value of the action.
An early April test at the March low has found willing buyers, which gives a constant increase, which has made a return in the state of the high on April 21. The stock broke out immediately, booking more than the average volume in a channeled rising of which has posted a record high of $44.79 during the first week of June. Investors have become more cautious since that time, the sale of a reversal just below the front of the top on June 22.
The Short-Term Outlook
The stock fell in the 20-day simple moving average (SMA) this month for the first time since April, bounced back to eight sessions, and he returned to this short-term support level. The daily stochastic oscillator has turned down in response to this mixed action, which indicates a loss of momentum, as a result of recent legislative setbacks and pessimism on the professional sports in 2020. A drop to $38 could trigger a sell signal in this configuration, realization of a potential double top pattern.
The balance volume (OBV), the accumulation-distribution indicator focuses on the momentum of buying interest in April and May, the zoom in to an all-time high with the price. The stock sold in a wide range of inversion, the 22nd of June, just one day after the publication of the volume, session of its public history. It now appears that the smart money sold in this offering, which was probably initiated by the so-called “Robinhood traders.”
A fall could reach a great support to the 50-day exponential moving average (EMA), which is aligning with the .382 rally retracement level at the bottom of $30. Long-sided exposure taken in this area could benefit from a strong rebound, but the event risk could tighten the noose if more players get COVID-19 and plans to reopen in professional and college sports runs in other cases of a pandemic of dams.
The Bottom Line
DraftKings stock has attracted the attention and the capital of momentum traders in the last three months, but professional and college sports could easily fail in their early efforts to resume operations.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.