Streaming platform Roku, Inc. (ROKU) has benefited from the second quarter of the vast recovery effort, and rolled on, raising the odds for a steep decline that has the potential to reach March’s 11-month low. It is difficult to determine the role of catalyst for the recent selling pressure, with a single Wall Street to downgrade and 4 million shares of participation in providing the only obvious negative in the past month.
However, Roku maxing out on May 7 and sold at almost 8% in the next session, in spite of the beating of the first quarter of 2020, the revenue estimates by a wide margin. A 55.2% year-to-year increase in revenues of $320.77 million failed to inspire buying interest, perhaps because the company also recorded a net loss of $0.45 per share. Roku stock continued to lose ground since the release of the report and is now trading more than 30 points below the recovery high.
The Can confessional also admitted that the second quarter, advertising revenue was unlikely to meet guidance, despite a 30% growth in the April accounts. The potential shortfall of the highlights of the company’s cyclical vulnerability, with advertising revenues traditionally grow during periods of economic expansion and falling during recessions and recoveries. Re-openings around the world can also affect the interest of the buyers, with people having less time for home entertainment.
ROKU Weekly Chart (2017 – 2020)
The creation of the public company in the mid-teens in September 2017 and reversed near $30 in the next session. A slow backwards movement of the held above the ipo opening of the print in November, when a momentum powered by in advance set in motion, by tripling the share price in just six weeks. The corollary to this, the recession that has displayed a low in April 2018, giving way to a resurgence of interest from buyers who have completed a round-trip in the state of the high in August.
Immediately breakout stalled in the middle of$70, two months later, before a decrease significantly lower than in the month of April, down nearly three points at the end of the year. It has recovered the losses in May 2019, completing a cup and handle breakout that has resulted in a substantial purchasing power in September. The stock posted a record high of $176.55 at the time and rolled in a persistence of the trading range with support in the upper $90.
Price action is held inside of these limits in March 2020, when the pandemic was driven by a somersault, sliced through the support of the fork before cutting a successful test in May 2019 breakout in the $70. The second quarter rebound winding of the distribution of support in an April 14, difference between $97 and $102, but the rally reversed the development trend line of lower highs on 7 May, highlighting the resistance that marks the demarcation line between bull and bear power.
The weekly stochastic oscillator falls into the oversold zone after a long week’s bounce failed to clear the 50-week exponential moving average (EMA) of the resistance, but it shows no signs of passage to buy a new one cycle. However, the bears need to act defensively, to this point, because the downtick early in the month of May is now approaching the April gap, and reinstated the support of the fork, increasing the chances that the buyers will soon leave the bench.
ROKU Daily Chart (2019 – 2020)
The balance volume (OBV), the accumulation-distribution indicator garnished with prices in September and is entered in a distribution phase, which has also posted a string of lower highs. OBV is now dangerously close to the lows in March, highlighting the weakness of the second quarter, the purchasing power, despite the rebound of 80 points of more. At a minimum, it cautions the traders and investors to stand aside for now, waiting for the elusive signals of purchase.
The first nine months of model could be the final arbiter in this complex, because it has dug a channel down that has resisted three attempts to escape. At the same time, this week, of the sale to the closely aligned 50 and 200-day EMAs places bear load at short-term price action, increasing the probability that the stock fail to hold horizontal support despite April’s escape. A breakdown is likely to increase selling pressure once again, the increased vulnerability to a return trip to the first-quarter low.
The Bottom Line
Committed bears are now in control of Roku share price in spite of the second quarter, the recovery is impressive.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.