Did Peloton Stock Just Bottom?

Peloton is trying to bottom after a painful 50% correction. Can earnings and putting bad news behind it finally get Peloton to rebound?
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Peloton  (PTON) - Get Report has been caught up in an intense couple of days. Earnings just pours on additional volatility.

Earlier in the week, Peloton announced a massive recall on its treadmill product.

This sparked obvious concerns from investors, ranging from the impact on future sales to the expenses related to such a logistical nightmare, (now we have a better idea of that impact).

Then the company reported earnings on Thursday after the close of trading. The results have sparked a rally, although shares are only up about 1% despite the better-than-expected results. The stock had risen almost 10% in early trading. 

Amid all of this is a bear market in high-growth stocks and, in particular, those that have seen large gains during the pandemic (like Peloton).

After all this noise, what’s going on with the charts? The short answer: It’s not pretty.

Trading Peloton

Daily chart of Peloton stock.

Daily chart of Peloton stock.

Let’s use Peloton’s chart as a lesson. At its recent low, shares were down about 53% from the January high.

The first lesson is relative weakness. Peloton topped out in January, about a month before the rest of the high growth stocks did in February. That means Peloton was putting in a series of lower highs as others were putting in new highs.

Once growth stocks broke down, so too did Peloton. Once it lost its prior high near $140 - which was acting as support, as well as the 50-day moving average, it was time to be flat this name.

It’s easy to say in hindsight, but this the type of price action traders need to keep in mind. 

That breakdown sent Peloton down toward $100 and the 200-day moving average. It did firm up in this region, as uptrend support (blue line) continued to buoy the stock. However, here’s the second lesson: Once this trend line gave way and there was nothing else to support Peloton stock, there was no reason to be long this stock from a trading perspective.

It’s what should have kept out bullish traders ahead of this week’s drop, even though we couldn’t have predicted the company’s recall announcement.

On the upside, let's see if Peloton stock can reclaim the 10-day moving average. Above that puts $94 in play, then $100. Above that puts the 50-day and 50-week moving averages on the table. 

On the downside, it’s clear Peloton is trying to bottom. Has it?

Let’s keep a close eye on the $78 to $80 area. A close below $75 signals that Peloton may have further to fall. As long as it holds this area, though, perhaps we can see a decent rebound.