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Buy or Sell Roku on Earnings? Here's the Chart

Roku is set to report earnings and the stock hasn't been trading well. Let's look at the chart to get an idea of the key levels.

The world of streaming video has never been stronger, but shares of Roku  (ROKU)  haven't been performing all that well.

The stock is currently down about 35% from the highs set in February, which came just ahead of the company's previous earnings report.

Despite a strong quarter, investors “sold the news” as Roku shares moved lower. Of course, it didn’t help that growth stocks in general were under intense selling pressure.

Ultimately, Roku stock bottomed in March, down about 40% from the prior high.

Coming into the report on Thursday after the stock markets close, Roku is almost sure to deliver strong results. However, with a difficult comparison period due to COVID-19 coming up, will investors again sell the news?

It’s possible. They did it with Netflix  (NFLX)  a few weeks ago.

Despite strong results for its Disney+ platform, Disney  (DIS)  also had trouble rallying after its prior earnings report. Will Roku set a different tone this time?

Disney is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells DIS? Learn more now.

Trading Roku

Daily chart of Roku stock.

Daily chart of Roku stock.

Roku stock is giving traders an inside day on Wednesday, but that hardly matters with earnings due up so soon.

Bulls are looking for the quarterly report to drive shares back above $336. Bears want to see the stock puke on the print, potentially retesting or even breaking the March lows.

The chart sets up in a very interesting manner.

The stock recently gave us a two-times weekly down rotation below $336.62. That set up the recent gap-down, although Tuesday's decline in tech stocks obviously didn’t help matters.

On a bearish reaction, the $290 to $300 area is going to receive a lot of attention - as it should. Roku hammered out a very nice bottom around $300 in late March, with a low around $293.

This time though, the 200-day moving average also comes into play as an extra layer of support.

I’ll be honest, I really like Roku. However, it doesn’t have momentum working in bulls’ favor. If the stock sells off on good numbers and tech stocks, or growth stocks specifically, remain under selling pressure, Roku could easily retest this area.

For long-term investors, this may be a great buying opportunity. However, if it doesn’t hold, we can’t rule out the $265 area. That will fill a small remaining gap and likely give us a test of the 50-week moving average.

On the upside, recapturing $336 and the 50-day moving average is key. However, the 21-week moving average has been the real layer of resistance lately. Look for a bullish earnings reaction to kickstart a move toward this area.

Above it puts $383 in play, then $400.