Buy the Breakout in Peloton? Here's What Bulls Need to See

Peloton is trying to rally after a better-than-expected earnings report. Here's what investors need to see from this growth giant now.
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The stocks market was trying to find its direction on Friday while Peloton  (PTON) - Get Report investors were looking to squeeze out more gains.

The stock gained 1% on Friday, after the company beat on earnings and revenue expectations.

Some may be disappointed with the stock’s meager rally on the day. However, if they are long, they should be relieved. The stock initially fell in after-hours and premarket trading to the tune of 6.5% to 9%.

The fact that Peloton stock is even up on the day is a testament to bulls’ appetite for the stock.

The company turned in a strong quarter, with earnings of 20 cents a share almost doubling estimates for 11 cents, while revenue of roughly $758 million grew more than 232% year over year and beat expectations by more than $24 million.

However, after such a strong rally this year - up 346% so far in 2020 - it’s no wonder the stock was struggling to push higher. That said, it’s contending with a key rotation point on the chart.

Trading Peloton

Daily chart of Peloton stock.

Daily chart of Peloton stock.

The stock peaked at $139.75 a few weeks ago on October 16th. Luckily for bulls, the stock pulled back ahead of earnings, shedding a rather healthy 22% from peak to trough.

Shares began to perk up this week, rallying over 6% on Wednesday and another 6.8% on Thursday. In the former session, the stock reclaimed the 10-day moving average, while it reclaimed the 20-day moving average in the latter session.

Wednesday’s session also broke Peloton stock out of its downward channel. Further, Thursday’s action the stock a rotation over last week’s highs at $125.65.

It was a bit risky to trade off that rotation ahead of earnings, though. Instead, bulls are waiting to see if Peloton stock can end the week above this mark. That would confirm our weekly-up rotation, setting the stage for a larger move higher.

Specifically in that case, I want to see Peloton clear the post-earnings high at $132.79, putting the all-time high up near $140 back in play.

A close above that mark could put the 138.2% and 161.8% extensions in play near $151.50 and $158.75, respectively. Those extensions are measured from the October low to the all-time high.

On the downside, a close below the 10-day moving average is concerning in the short-term. It will put the October low back in play at $109.01, followed by a test of the 50-day moving average.

Until the bullish pattern is broken though, I’m looking at Peloton for upside confirmation rather than a breakdown.