How to Trade DraftKings After Bullish Earnings Reaction

DraftKings is rallying but fading from its post-earnings high. Here's how to trade the stock after the report.
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Shares of DraftKings  (DKNG) - Get Report were moving higher on Friday, up 4% after the betting company reported earnings. However, that's down from the stock's jump of 10.3% at the session's high.

Revenue of $133 million grew 98.5% year over year and beat estimates by more than $1.3 million.

Guidance was even better, though. With just one quarter left to go in 2020, management expects full-year revenue between $540 million and $560 million. That’s above the prior range of $500 million to $540 million and ahead of consensus expectations at $525.5 million.

For 2021, management is looking for revenue of $750 million to $850 million. At the midpoint - $800 million - that’s ahead of analysts’ expectation for $770.5 million.

Investors are hopeful that despite a surge in Covid-19 cases lately, the first and second quarters of 2021 won't be plagued with lockdowns and an absence of sports as it was earlier this year.

If that is the case, this stock could have more upside. Let’s look at the charts.

Trading DraftKings

Daily chart of DraftKings stock.

Daily chart of DraftKings stock.

After a flurry of bullish catalysts, DraftKings ran out of steam in early October. The stock topped out near $64, began to tip lower, then plunged.

DraftKings priced a secondary offering at $52, but that level became resistance in mid-October as bulls lacked the strength to overcome the new supply.

After being rejected from $52, the stock fell in 11 of 13 trading sessions. From the highs, shares fell in 16 out of 20 sessions, forming a very steep falling wedge pattern (blue line).

The stock was able to break out of this funk on optimism surrounding sports betting being legalized in more states. While DraftKings has been cautiously pushing higher and holding the 100-day moving average, the stock isn’t back in full-blown bull mode just yet.

Specifically, DraftKings stock was rejected by this week’s high near $45. That mark also comes into play from June, which was the prior high and major breakout area in September.

From here, the roadmap simplifies. On the upside, we need to see DraftKings stock close above $45 and the 50-day moving average currently near $46.50. That's step one. Above the latter puts the $52 secondary price in play, followed by a gap-fill near $55.

On the downside, a break of the 100-day moving average puts this week’s low in play at $38.44. A close below that level puts the October and November low in play near $35. Below that and the 200-day moving average is on the table.