Trading Roku as Shares Stream to All-Time Highs

Roku inks a deal with AT&T's HBO Max, propelling the stock to all-time highs. Let's look at the charts to see how to trade it.
Author:
Publish date:

Roku  (ROKU) - Get Report was rocketing to new all-time highs on the day, hitting $352.12 early in the session.

The move came after a pretty bullish rally over the past few months.

Thursday morning’s pop, in which shares opened higher by 6.4% and climbed more than 8%, was mostly inspired by the news that AT&T’s  (T) - Get Report HBO Max platform was finally available on Roku.

The two parties finally hammered out a deal, not long after HBO Max also came to Amazon’s  (AMZN) - Get Report Fire TV last month

To not be on these two platforms seems like a gutsy play as a streaming platform, but it only reiterates the long-term potential for Roku. As such, Benchmark analysts raised their price target on the stock to $410 from $300.

Now investors are trying to balance the long-term bullish thesis with the short-term surge in the stock price. Let’s look at the charts.

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

Trading Roku

Weekly chart Roku stock.

Weekly chart Roku stock.

I love the long-term bull case for Roku, but at some point one does have to wonder about the recent rally.

Above is a weekly chart, showing the last two years of action. Notice how strong the stock was, topping out at $176.55 in early September 2019. Roku stock was roughed up from that point on, struggling to rally with many of its other growth peers.

It took until September 2020 to retest the $176.55 high and as you might have guessed, the stock was rejected from this level. 

Ultimately finding support near $155, Roku then pushed through this resistance level before finding it as support a few sessions later (blue circle on the daily chart below).

Daily chart Roku stock.

Daily chart Roku stock.

Roku has been rallying since as it works on its seventh straight monthly gain and its fifth straight weekly gain. Shares have doubled from that breakout point on Sept. 25.

The 10-day moving average has been guiding it higher. On a dip, this is the level I want to see hold. Should it act as support or should Roku rally before retesting that mark, look for a test of $368, which is the 261.8% extension.

If the 10-day moving average fails, perhaps the rally will be running out of steam. 

In that event, I want to see how Roku handles a retest of the two-times range extension near $295, followed by a test of the 10-week moving average, which has been support for months now and tends to be support for strong and trending stocks.