Trading Peloton as It Hits New Highs Ahead of Earnings

Peloton hit new all-time highs ahead of earnings. Has the stock run too high over the last few months? Here's the trade in the stock.
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Peloton  (PTON) - Get Report stock raced higher Thursday, climbing as high as 8.16% and hitting a new record high of $98.61.

However, shares have since backed off that high, now up just 1%. The volatile rally comes as the company is set to report earnings after the close of trading Thursday.

Peloton has been scorching hot over these last few months. The work-from-home theme has transcended office cubicles, impacting gym-goers and the entertainment industry, among others.

As a result, Peloton shares have soared more than 450% from the March low to today’s high. What can Peloton do on earnings?

Trading Peloton Earnings

Daily chart of Peloton stock.

Daily chart of Peloton stock.

On Monday, shares corrected down toward the 20-day moving average and near the breakout area between $70 and $72.50. This zone acted as support, as Peloton stock bounced and closed significantly higher on the day, near $80.

Positive news regarding Peloton’s new products and excitement ahead of what many expect to be strong earnings also helped give the stock a boost this week.

Now we’re at a tough spot. I don’t like when names burst higher and run hard into a big public event. It sets the stage for a potential sell-the-news reaction.

The stock’s being rejected from the 423.6% extension, which is just above today’s high at $99.54 and the psychologically relevant level of $100.

On the upside, bulls will want to see Peloton stock clear these marks and close above them. If it can do so, it unlocks even more upside potential, possibly putting $110 and $121 in play down the road.

My concern is on the downside. While it was likely a great quarter, investors have some lofty expectations. On a post-earnings dip, let’s see how that $70 to $72.50 area holds up, along with the 20-day moving average.

If this zone holds, it will leave bulls in control, as the trend will be intact. Below this area will put the 261.8% extension and the 50-day moving average on the table.

Should we get a larger post-earnings pullback and a market-wide correction, $50 could eventually be in play for Peloton stock. That level was a notable breakout mark in June and also comes into play near the 161.8% extension.