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Robinhood’s Chart Screams Caution as Stock Rolls Over

Robinhood receives the 'Reddit treatment' shortly after its IPO, but it has struggled since. Here's how to trade it now.

Robinhood  (HOOD) - Get Robinhood Report showed promise for all the “meme traders” out there, especially with the way we’ve seen AMC Entertainment  (AMC) - Get AMC Entertainment Holdings, Inc. Class A Report and GameStop  (GME) - Get GameStop Corp. Class A Report trade lately.

As the months tick by from the short-squeeze trades we saw earlier in the year, there are occasional, albeit extreme bouts of rallies in these Reddit faves.

Robinhood priced its IPO at the low end of its range, at $38 a share, which is where it opened for trading on July 29.

The response was pretty lackluster, with the stock trading down to $33.35 at one point in the company’s first session as a public stock. A few days later, though, it was a different story.

Robinhood stock was being halted as shares exploded to the upside. At the high, shares hit $85, with many traders looking for the stock to hit $100.

However, after a painful correction, what can we make of the charts?

Trading Robinhood Stock

Daily chart of Robinhood stock.

Daily chart of Robinhood stock.

Shares fell in eight of 12 sessions amid the recent pullback, as Robinhood stock failed to hold $50 and the VWAP measure.

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However, the silver lining to that correction is that it set up a “falling wedge” pattern.

That pattern tends to be bullish, provided that the stock can break out of the wedge, not break down.

Robinhood gave bulls exactly what they were looking for, breaking out over the 10-day moving average and out of the falling wedge. While it initially held the 10-day as support, the stock struggled with the $50 level.

Since then, the stock has faded and Robinhood stock is now below 10-day and 21-day moving averages.

Struggling for upside action now, it’s hard to be long this name based on the technicals. It doesn’t help that the stock continues to put in a series of lower highs, as shown with blue arrows on the chart.

Those that do want to be long must keep an eye on the $42.44 level. That was the low before Robinhood stock broke out of the falling wedge pattern. A break of this measure puts the $40.25 level in play — the day-one high from the IPO.

Below $40 and the day-one low at $33.35 is a possibility.

On the upside, the stock may struggle until it can reclaim the $50 to $52 area. If it does that though, it will have cleared a lot of hurdles and could finally be ready for a sustained rally.