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Buy Roku Stock After Its New Deal With Alphabet’s YouTube?

Roku stock is ripping higher after its new deal with YouTube. Does that make it a buy?

Shares of Roku  (ROKU) - Get Roku, Inc. Class A Report are exploding higher on the day, up more than 15% on Wednesday.

The rally comes after Roku came to an agreement with Alphabet  (GOOGL) - Get Alphabet Inc. Class A Report  (GOOG) - Get Alphabet Inc. Class C Report over its YouTube platforms, giving investors a sigh of relief.

The competition in the streaming video business has been heating up and Alphabet is technically a competitor with Roku in this field. Roku is also making its own original content.

However, so are other big companies — namely Amazon  (AMZN) - Get, Inc. Report.

As the competition heats up, investors worried that Roku losing YouTube would deal a big blow to the company’s future streaming prospects. That’s despite Roku being a top performer in the space.

Of course, the news that Roku and YouTube were struggling to come to terms with a deal came at a time where growth stocks were trapped in a painful bear market.

Roku wasn’t exempt, suffering a peak-to-trough decline of almost 60%.

Yesterday we asked if growth stocks have bottomed. Now we have to wonder if Roku has too.

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Trading Roku Stock

Daily chart of Roku stock.

Daily chart of Roku stock.

Roku stock gave bulls a double-tap off the $200 level on Friday and then again on Monday.

For bulls that were already long, what difference did it make? Yes, the stock was trying to bottom along with its high-growth peers, but Roku also tried to do so at $275, then again near $225.

Who was to know that $200 would be any different? That’s the problem with trying to catch a falling knife on these long and drawn out bear market cycles.

Now clearing prior support at $223 and the most recent resistance level near $237, the 21-day was the next hurdle for this name. Pushing through it now, I think investors need to look even higher.

Specifically, keep the $270 to $275 area on your radar.

That’s where Roku stock finds the gap-fill level from November, as well as the 21-month and declining 50-day moving averages and the daily VWAP measure.

If it can push through that area, then $300 is possible. Above $300 and the 200-day moving average may be the next upside target.

There’s no guarantee that the low is in, but the chart looks much better after this week. 

On the downside, watch for a break below the 21-day moving average. If that happens, Wednesday’s low is vulnerable at $223.60, followed by a potential gap fill down to $220.54.