During Tuesday night's Mad Money program, Jim Cramer told viewers about a number of patterns in the stock market. One pattern was that news of setbacks to vaccine trials sent up shares of stay-at-home stocks like Peloton (PTON) , DocuSign (DOCU) and Roku (ROKU) .
Let's check out ROKU again today. We looked at shares of ROKU earlier this month on October 2 where we wrote that, "The price of ROKU has more than tripled from its March nadir and with a developing bearish divergence from our momentum indicator I feel a more cautious stance is needed into year-end. Raise sell stops to a close below $170 now on remaining longs."
In this daily Japanese candlestick chart of ROKU, below, we can see that prices have leapt higher since our last review. Traders should raise stop protection to a close below $195 now from below $170. Prices are now up four-fold from their March nadir. The 50-day and 200-day moving averages have positive slopes.
The daily On-Balance-Volume (OBV) line has moved higher since March and confirms the price gains. Traders have been more aggressive buyers of ROKU.
The 12-day price momentum study has made higher highs from September to October which tells us that the pace of the advance is not slowing just yet.
In this weekly Japanese candlestick chart of ROKU, below, we see a bullish picture over the past three years. Prices are in a long-running uptrend above the rising 40-week moving average line.
The weekly OBV line is bullish but has not moved up to a new high like prices have. This divergence is a little troubling as volume confirmation is absent so far.
The 12-week price momentum study shows higher highs but that could change quickly.
In this daily Point and Figure chart of ROKU, below, we can see that prices have met and exceeded the price target of $213.
In this weekly Point and Figure chart of ROKU, below, we can see a potential $266 price target being projected.
Bottom line strategy: Traders should raise stop protection on ROKU to a close below $195. I can understand why traders are motivated to buy or sell on the headlines about vaccine trials but I find that to be "herd-like" action and that is not a good thing. Herds tend to be caught "wrong footed" at turning points.
