Roku Inc. (ROKU) has continued to rally ahead its fourth-quarter earnings, which are expected after the close Thursday. We looked at ROKU on Jan. 4, when we wrote, "Traders who are still long ROKU should raise stop protection to $301 from $240. I consider it a bearish clue when a stock declines on news that seems bullish."
Let's check the charts again.
In this daily Japanese candlestick chart of ROKU, below, we can see that prices have been in an uptrend. In recent days we can see some upper shadows above $475. Traders are rejecting those prices. ROKU is above the rising 50-day moving average line. The slower-to-react 200-day moving average line intersects down around $225, so with prices up around $475 or more than twice the 200-day line they are considered extended or overbought. The On-Balance-Volume (OBV) line shows a rise but also a slowing in the advance since January. The 12-day price momentum study shows lower highs from January to February, which tells us that the pace of the advance slowed. This is a bearish divergence when compared to prices, which made higher highs over the same time period.
In this weekly Japanese candlestick chart of ROKU, below, we can see a mixed picture. Prices have been in an uptrend for at least the past three years. Prices are above the rising 40-week moving average line. With prices trading at twice the 40-week average they are considered overbought. The trading volume has been shrinking the past year and that is not a good trend. The weekly OBV line is pointed up but has lagged the price action since March. The weekly Moving Average Convergence Divergence (MACD) oscillator is in a bullish alignment above the zero line.
In this daily Point and Figure chart of ROKU, below, we can see a potential upside price target in the $705 area. We can also see that a trade at $446 or lower could weaken the picture.
Bottom line strategy: ROKU's performance has made a lot of investors happy. Prices are now extended/overbought and potentially more vulnerable to a downward reaction. A formal top pattern has not developed, so the longer-term pattern is bullish. Traders may want to take some profits and/or raise stop protection to around $410.
