Trading Strategies for Roku Stock Before And After Q3 Earnings

Roku, Inc ROKU was trading slightly lower Wednesday, forming an inside bar pattern on lower-than-average volume. Roku is set to print its third-quarter financial results after the market closes.

When Roku printed its second-quarter earnings beat on July 27, the stock surged a whopping 31.41% and an additional 7.5% over the two trading days that followed before topping out at $98.44 and entering a downtrend.

For the second quarter, Roku reported revenue of $8.472 million, which beat the $773.43-million consensus estimate. The company reported negative earnings per share of 76 cents, beating a consensus estimate for a loss of $1.27.

For the third quarter, analysts, on average, estimate Roku will report a loss of $2.08 per share on revenues of $853.23 million.

Ahead of the event, MoffettNathanson analyst Michael Nathanson upgraded the stock from Sell to Neutral and announced a $55 price target. Read More Here...

From a technical analysis perspective, Roku’s stock looks neutral heading into the event, trading in a bullish inside bar pattern but settling into a possible bear flag pattern. It should be noted that holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat.

A company’s guidance for subsequent quarters, which is often provided during a conference call, can also heavily affect a stock’s direction.

With that being said, bullish traders looking to enter a position may choose to wait for signs that the local bottom has occurred.

Traders and investors looking to play the possible upside in Roku stock but with diversification may choose to take a position in the AXS 2X Innovation ETF TARK. TARK is an actively managed double-leveraged ETF aiming to return 200% of the daily performance of Cathie Wood-led ARK Innovation ETF ARKK, the latter which holds a 7.8% weighting of Roku.

Want direct analysis? Find me in the BZ Pro lounge! Click here for a free trial.

The Roku Chart: On Wednesday, Roku was consolidating with an inside bar after rising 5.71% on Tuesday. The pattern leans bullish in this case because Roku traded higher to form the mother bar.

• Bullish traders want to see the stock receive a bullish reaction to its earnings and then for big bullish volume to come in and break the stock up above Tuesday’s high-of-day. If that happens, Roku will regain the eight-day exponential moving average (EMA) as support, which will negate the bear flag pattern.
• Bearish traders want to see the bear flag pattern play out and for the stock to drop under Monday’s low-of-day on higher-than-average volume. The bear flag was formed between Oct. 25 and Wednesday and has a measured move of about 14%, indicating the stock could fall toward $51.
• Roku is trading under the 200-day simple moving average, suggesting the stock is currently in a bear cycle. The eight-day EMA is also trending under the 21-day EMA, which is bearish.
• Roku has resistance above at $61.50 and at $66.79 and support below at $55.88 and at $50.25.

Read Next: Early Believer In Tesla And NVIDIA, Cathie Wood And Her Firm Changed Modern Investing

Image sourced from Shutterstock