Don't Change the Channel on Roku

Here's why the shares could stage a recovery.

The Roku device allows you to stream free and paid video content on your TV, but shares of the company Roku (ROKU)  are what I want to dial into Friday. A sell-side firm raised its fundamental recommendation for the stock to "hold" Friday, so let's check out the charts.

In the daily bar chart of ROKU, below, we can see that the shares have made a long and painful decline from late July. Prices were cut in half and then cut in half again. ROKU is trading below the declining 50-day moving average line and we can see several rally failures to the underside of that indicator. The slope of the 200-day moving average line is also bearish and prices are extended (oversold) when compared to where the indicator intersects.

The On-Balance-Volume (OBV) line shows a decline from late July but also a sideways move from late February suggesting a balance between bulls and bears. The 12-day price momentum study shows higher lows from November as the pace of the decline has slowed down. This is a bullish divergence between the movement of price (down) and the movement of the indicator (up). This divergence, at times, can foreshadow a price rally.

 

In the weekly Japanese candlestick chart of ROKU, below, we can see two lower shadows below $90 as traders rejected those lows. This is a positive development.

 

The weekly OBV line shows a decline from February 2021 telling us this decline is mature. A downside price target from the double-top formation last year has been reached and exceeded. The 12-week price momentum study has been improving and like the daily study (above) tells us that the decline has been slowing.

 

 

In this daily Point and Figure chart of ROKU, below, we can see a downside price target of $47. A trade at $102.38 will improve the picture.

 

 

In this weekly Point and Figure chart of ROKU, below, we have a target of $33.

 

 

Bottom-line strategy: ROKU has made a long and painful decline but now the shares look poised for a recovery. Aggressive traders could go long ROKU at current levels risking below $74. On the upside we could see a rally back into the $150-$175 area.

 

Employees of TheStreet are prohibited from trading individual securities.