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Roku Has Had Trouble Gaining Traction - Here's the Trade

Roku investors wonder when this one-time growth darling will go on a long run. Here's where support may come into play.

Roku  (ROKU) - Get Roku, Inc. Class A Report, once the growth-stock darling of Wall Street, has had trouble gaining traction in 2020.

That struggle continues on Thursday, with the shares of the San Jose, Calif., streaming platform down 7.5% despite better-than-expected earnings results.

After gapping higher in February on the earnings report, the stock’s short-lived rally coincided with the top in the overall market as the coronavirus selloff infused volatility into the market and hammered stocks.

Roku shares also dipped in May after the company reported earnings. Some investors don’t need this play by play, but even though Roku had been moving bullishly lately, it’s struggled to keep up with some of its growth peers like Twilio  (TWLO) - Get Twilio, Inc. Class A Report or even Fastly  (FSLY) - Get Fastly, Inc. Class A Report.

Twilio dipped on earnings. So did Fastly. But both were up immensely ahead of the results. Roku hadn’t even taken out its 2019 highs yet.

Let’s take a closer look at the charts.

Trading Roku Stock

Daily chart of Roku stock.

Daily chart of Roku stock.

As frustrating as some investors may find Roku, the charts are really clearly laid out.

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In early July, Roku stock began to find some momentum, breaking out over $135 with force. The shares were consolidating in a tightening wedge (blue lines) for several weeks before making another push higher ahead of earnings.

Roku shares rallied to their highest levels since September 2019, when they topped out at $176.55.

After the report on Wednesday after the close, the stock rallied in after-hours trading and actually took out this level for a few moments. 

In regular-hours trading though, the shares are moving lower. For now, the stock is finding support at the 20-day moving average and the February high near $150.

Should this level break, it likely puts the $135 area in play. This was the breakout level from last month, while the 50-day moving average is currently just below, near $133.

For more conservative bulls, this may prove a better buying opportunity than at current levels - that is, provided it gets there.

If support holds, investors will want to see if Roku stock can fill its post-earnings gap back up toward $165, then take out the 2020 high currently at $169.15. Above that and — you guessed it — the 2019 highs are in play near $175.

While the post-earnings reaction has been lower, don’t be too quick to get too bearish on Roku. 

This was a pretty solid quarter and the dip could very well prove buyable if support holds in.