The company went public only in February 2018, which limits my analysis to monthly and quarterly levels.
The stock has been extremely volatile since setting its all-time intraday high of $176.55 on Sept. 9, 2019.
My call is to buy weakness to its 200-day simple moving average at $122.17 and reduce holdings on strength to its monthly risky level at $160.80.
Roku added 4.6 million subscribers for its quarter ended in December. This was driven by new offerings from Disney (DIS) - Get Report and Apple. (AAPL) - Get Report Here’s the earnings analysis as prepared by TheStreet.com.
At $143.98, the stock is up 7.5% year to date and in correction territory 18% below its Sept. 9 high of $176.55.
The stock is also on a strong bull run, having nearly tripled from its Feb. 21, 2019, low of $51.14.
Sept. 9 was a negative key reversal day as the day’s close of $161.03 was below the Sept. 6 low of $164.85. This led to a bear-market decline of 44% to its low of $98.08 set Sept. 27.
This was followed by a bull-market run of 72% to a high of $158.85 set on Nov. 27. This volatility can be traded.
The Daily Chart for Roku
Courtesy of Refinitiv XENITH
The daily chart for Roku shows the formation of a golden cross on May 15, 2019, when the 50-day simple moving average rose above the 200-day simple moving average. Such a move indicates that higher prices lie ahead.
This bullish signal is intact and buying weakness to the 200-day SMA at $122.17 is the correct strategy.
The close of $133.90 on Dec. 31 was an important input to my proprietary analytics. Since the stock does not have nine years of closes or half-year closes, we can't calculate annual or semiannual levels.
The first-quarter value level is the horizontal line at $104.33.
The close of $120.95 on Jan. 31 was an input to my analytics and resulted in the monthly risky level at $160.80, which is the higher horizontal line.
The Weekly Chart for Roku
Courtesy of Refinitiv XENITH
The weekly chart for Roku is neutral, with the stock above its five-week modified moving average of $133.13.
The stock has not been publicly traded for more than 200 weeks, so we can't specify a 200-week simple moving average, or reversion to the mean.
The 12x3x3 weekly slow stochastic reading is projected to slip to 22.8 this week from 24.68 on Feb. 7.
At the December 2018 low, this reading was 5.77, well below the 10 threshold that made the stock technically too cheap to ignore.
Trading Strategy: Buy weakness to the 200-day simple moving average at $122.17 and reduce holdings on strength to the monthly risky level at $160.80.
How to use my value levels and risky levels:
The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual and annual levels remain on the charts. Each uses the past nine closes in these time horizons.
Monthly levels for February were established based upon the Jan. 31 closes.
New weekly levels are calculated after the end of each week.
New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.
A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.
A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.