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How to Trade Roku After Financial Chief Departs

Roku is slipping on news that its chief financial officer will resign, but the slide began long before that news surfaced. Let's look at the charts.

Roku  (ROKU) - Get Roku Inc. Report shares were under pressure Tuesday following news that its chief financial officer was resigning.

Wall Street doesn’t typically like when members of the C-Suite step out of their roles, particularly when it’s the head of finance and especially when the stock has been on fire.

Despite being down about 20% from its highs, Roku shares are still higher by 345% in 2019. It’s got investors wondering if Tuesday’s selloff is a buying opportunity or a warning sign that more pain is to come.

It’s also got Real Money taking a closer look at the stock, as it has been named the group’s pick for Stock of the Day.

Trading Roku Stock

Daily chart of Roku.

Daily chart of Roku.

Roku has been highly volatile in the second half of 2019. After racing higher by roughly 75% from its August lows near $100 to $176.55 in about a month, shares promptly fell more than 40% back to $100. Then, shares rallied another 68% before its latest retreat.

Hitting these moves can result in massive profits, both for bulls and the bears. While many growth stocks have been in favor lately, like Shopify  (SHOP) - Get Shopify Inc. Class A Subordinate Report, Roku hasn’t found the same demand.

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A look at the daily chart above highlights the stock’s struggle -- and it didn’t just begin on Tuesday with the CFO news.

When Roku was downgraded in late November, the stock took a somewhat ridiculous 15.2% fall. One could argue that the stock is overvalued, but it’s hard to make a compelling case where a downgrade -- or an upgrade for that matter -- should be worth 15%. 

In any regard, Roku has struggled to recover from that fall, which found support at the 50-day moving average.

A few sessions later the 50-day failed a support, then acted as resistance. For now, uptrend support (blue line) and the 100-day moving average are acting as support. This gives traders a rather simple setup.

On a close over short-term downtrend resistance (purple line) and the 50-day moving average, and more upside could be on the table. Specifically, the December high at $153.35 will be the first upside target, while a gap-fill up toward $160 will be the next.

On the downside, a close below uptrend support and the 100-day moving average could drop Roku stock down to support between $117.50 and $120. This is the gap-up level from its earnings report in August, while the 61.8% retracement for the one-year range sits at $119.15.

This area was also significant in October and November as well.

The bottom line is this: A move over the 50-day moving average puts $153+ on the table, while a move below the 100-day moving average puts $117.50 to $120 in the cards.