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Buy the Dip in Peloton? Let's Check the Charts

Peloton is falling Friday despite the company reporting a top- and bottom-line beat. Let's look at where support lies.

Peloton  (PTON) - Get Peloton Interactive Inc. Report was down on Friday but the wheels aren't necessarily coming off.

Shares were down about 6.5% after the company reported its fiscal second-quarter earnings. But let’s keep things in perspective here.

First, the stock was down about 9.5% at Friday’s low, so it’s already giving bulls a solid bounce. Second, if it weren’t for Thursday’s 7% rally, Peloton’s decline wouldn’t look so bad.

Case in point: The stock is actually up 0.5% from the prior session's close (Wednesday’s close). For the week, it’s basically flat, up about 1%. Essentially, it's earnings rally occurred before the print instead of after. 

Finally, let’s remember this stock has gained 340% over the past year and more than 100% in the last six months. It’s not like bulls have been drowning over here.

Peloton beat on earnings and revenue estimates and provided better-than-expected guidance for next quarter. Further, it logged its first quarter with more than $1 billion in sales.

Given the report, this is probably one to keep on our watch list. Let’s look at the chart.

Trading Peloton

Daily chart of Peloton stock.

Daily chart of Peloton stock.

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When I look at the chart of Peloton stock, three things jump out to me almost immediately.

First, the stock rallied right to the 161.8% extension and could not exceed this level. Second, it continues to respect the prior high near $140, as it acts as support.

Lastly, the 10-week moving average continues to act as support, buoying the stock in each of the last two weeks.

So what now?

We either need to see bulls hold support and rotate the stock higher or we need to see a move lower that gives us a better risk-reward setup.

Specifically, if the stock can reclaim the 21-day moving average and VWAP measure, it puts a weekly-up rotation in play over $157.83. That opens up $160-plus, then the 161.8% extension.

On the downside, I want to see current support hold, that being the 50-day and 10-week moving averages, as well as the prior high at $139.75.

A close below all of these marks could potentially put the 100-day moving average in play, currently near $126. Nearby, Peloton stock will also find its longer-term VWAP measure.

Here’s the bottom line: If current support fails and we lose $139.75, Peloton may need more time to set up or potentially become a buy-the-dip situation. On the upside, a rotation over $155 could accelerate a move higher.