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How to Trade Roku With Earnings Out of the Way

Roku has been trading pretty well over the past few months. With a flat response on earnings, here are the must-know levels now.

Shares of Roku  (ROKU)  were roughly flat on Friday despite reporting better-than-expected earnings. 

Many investors weren't expecting such a flat response from Roku. Bears were looking for the stock to provide a larger pullback, while bulls wanted to see more upside.

Keep in mind that shares have risen 130% from the November low as Roku’s had a massive move over the past few months. The fact that it’s holding up after earnings is impressive.

Helping prop it up was the company’s surprise profit, as Roku reported earnings of 53 cents a share when analysts were expecting a loss of 5 cents a share.

Revenue of roughly $650 million grew almost 60% year over year, keeping growth investors satisfied. It also has the analysts satisfied, with price-target hikes coming in Friday.

Can the stock maintain momentum? Let’s look at the chart.

Trading Roku

Daily chart of Roku stock.

Daily chart of Roku stock.

On the chart above, one will notice how strong Roku has been since the November low. Chugging higher, the stock continues to find support near the 21-day moving average.

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As Roku consolidates near the $450 area, investors are wondering how it will perform from here.

Is it strong enough to push through the three-day high?

If so, it can retest its short-term double-top near the $487 area. Near that mark, Roku has the 361.8% extension from its long-term range and the 161.8% extension from the recent range.

In short, it's a notable area as far as extensions go. Should the stock push through it, investors will be looking for $500, then higher. If Roku clears $500, it could put the $550 to $560 area in play, where the stock finds its next set of significant extensions.

Things get interesting should Roku stock break lower.

On the downside, I’m keeping a close eye on the 21-day moving average and uptrend support. A break of this area opens up the $400 level as a possible landing spot.

It could also put the 50-day moving average and VWAP measure in play, as well as recent support near $370.

Ultimately, Roku stock has been in a strong trend and we don’t want to bet on that trend ending prematurely. In other words, we want some confirmation before looking for lower prices. Until then, the stock has earned the benefit of the doubt.

That changes should it close below current support, which is the 21-day moving average and uptrend support.